School of Economics

2004 Discussion Papers

School of Economics Discussion Paper 04/02
January 2004

Export Credit Guarantees, Moral Hazard and Exports Quality
Maria del Carmen García-Alonso, Paul Levine and Antonia Morga

School of Economics
University of Kent at Canterbury

Abstract

We analyse the role played by Export Credit Guarantees (ECGs) to encourage exports to developing countries. The existence of moral hazard on the side of the firm is introduced. We show that the inability of the exporter's government to verify the actual quality of the product will limit its ability to encourage trade through ECGs, once the coverage provided goes beyond a certain threshold. This result provides a rationale behind the limited coverage on ECGs.

JEL Classification: G12, H56, L10

Keywords: export credit guarantees, offsets, moral hazard

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