Intermittent Trade Disruptions and Optimal Production

Research output: Journal PublicationsJournal Article (refereed)peer-review


This paper develops a planning model to study the optimal production policy of a small country facing production rigidity as well as uncertain and intermittent trade embargoes. The optimal policy is completely characterized by two target production points. With minor exceptions, the effects on the target points and welfare of the stochastic process governing the imposition and lifting of embargoes, the terms of trade, the ease of adjusting production, the discount rate, and the attitude towards risk can be ascertained and are economically rather intuitive. Some issues of decentralization and government intervention are also discussed.
Original languageEnglish
Pages (from-to)753-774
Number of pages22
JournalInternational Economic Review
Issue number4
Publication statusPublished - Nov 1989
Externally publishedYes

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