Abstract:

To protect exporters from the risk of importers' payment default, the export credit agency usually supported or owned by the domestic government offers a service, which is called export credit in-surance (ECI). Because of the existence of asymmetric information, we see an inability of the exporter's government to verify the actual quality of products, which will limit its ability to encourage trade through ECI once the coverage provided goes be yond a certain threshold. This result provides a ra-tionale behind the limited coverage on ECI.

Key words: export credit insurance, asymmetric informaiton, moral hazard, product quality