On the theory of east-west trade under uncertainty

Taking the final stage of the existing socialist economy as the labormanaged economy, this paper establishes a model of East-West trade between a capitalist economy and a labor-managed economy, both of which face asymmetric technological uncertainty. The model reflects the facts that the securities markets for firms' ownership shares exist only in the capitalist economy and that the firm's objective function in the capitalist economy is different from that in the labor-managed economy. It also considers the existence of international forward markets for commodities as international risk-sharing arrangements. Thus, the paper shows that all the basic theorems in traditional trade theory (Factor Price Equalization, Heckscher-Ohlin, Stolper-Samuelson and Rybczynski) carry over to the uncertain environments characterized by different types of economies.