Uncertainty, risk aversion and international trade

In this paper, I study the impact of uncertainty in the delivery of inputs on international trade patterns. I develop a model of sourcing decisions where risk-averse managers can contract with multiple suppliers in order to decrease the variability of firm profits. Among other results, the model predicts that firms will buy a larger share of their inputs from low price variability suppliers, and that the distribution of input demand across suppliers will be more dispersed in input markets characterized with high price variability. Econometric evidence suggests that the model is consistent with qualitative features of the data.