Abstract
This paper develops a general equilibrium model of international trade in homogenous intermediate inputs. In the model, trade between countries is driven by uncertainty in the delivery price of inputs. Because their managers are risk-averse, final-good firms contract with multiple suppliers to decrease the variability of their profits. The analysis shows risk diversification provides an incentive for international trade over and above such reasons as comparative advantage and economies of scale, and highlights a new channel -- a reduction in uncertainty -- through which trade can increase welfare.
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