Trade Credit Insurance and Asymmetric Information Problem

Open access

Abstract

The presence of different risk factors in international trade gives evidence of the necessity of support in gaps that may affect exporters’ activity. To maximize the trade volumes and in the same time to minimize the exporters’ risks the stakeholders use trade credit insurance. The paper provides analysis of conceptual background of the trade credit insurance in the world. We analyzed briefly the problems, arising in insurance markets due to asymmetric information, such as adverse selection and moral hazard. Also we discuss the main stages of development of trade credit insurance in countries worldwide. Using comparative and graphical analysis we provide a brief evaluation of the dynamics of claims and recoveries for different forms of trade credit insurance. We found that the claims related to the commercial risk for medium and long trade credits in recent years exceed the recoveries, while with the political risk the reverse trend holds. And we originally consider these findings in terms of information asymmetry in the trade credit insurance differentiated by type of risk.

American Insurance Corporation, 2013. Companies turning to Trade Credit Insurance in an unpredictable and debt-laden world. Zurich: American Insurance Corporation.

Ascari, R., 2007. Export credit agency a misnomer? The ECA Response to a changing world: CFO, Sace.

Auboin, M., and Engemann, M., 2014. Testing the trade credit and trade link: Evidence from data on export credit insurance. Review of World Economics, 150(4), 715-743. doi:

Baker, J. C., 2003. Financing International Trade: Greenwood Publishing Group.

Bell, J., 2014. Berne Union Yearbook 2014. London.

Bell, J., 2015. Berne Union Yearbook 2015. London.

Bell, J., 2016. Berne Union Yearbook 2016. London.

Berne Union, 2014. Berne Union Statistics. 2008-2013.

Berne Union, 2016. Berne Union Statistics. 2011-2015.

Cuñat, V., and Appendini, E., 2012. Trade credit and its role in entrepreneurial finance. In D. Cumming (Ed.), Oxford Handbook of Entrepreneurial Finance (pp. 526-557). Oxford: Oxford University Press.

Dewit, G., 1996a. Export insurance subsidization and undistorted trade creation. Working Paper N9610. University of Glasgow.

Dewit, G., 1996b. Export Insurance Subsidization: Risk Coverage, Strategic Export Promotion or Aid? Working Paper N9611. University of Glasgow.

Einav, L., and Finkelstein, A., 2011. Selection in Insurance Markets: Theory and Empirics in Pictures. The Journal of Economic Perspectives, 25(1), 115-138. doi:

Euler Hermes, 2015. A Guide to Credit Insurance. http://www.eulerhermes.us/creditinsurance/Documents/EH-CreditInsurance-WhitePaper.pdf.

Fingerand, M., and Schuknecht, L., 1999. Trade, finance and financial crises: World Trade Organization.

Gianturco, D. E., 2001. Export Credit Agencies: The Unsung Giants of International Trade and Finance: Greenwood Publishing Group.

Gomes, F. A., 2004. Export credit insurance. Comparing the Brazilian and American Models: Institute of Brazilian Issues.

International Credit Insurance & Surety Association, 2015. A Guide to Trade Credit Insurance. UK: Anthem Press.

International Financial Consulting Ltd., 2012. Study on short-term trade finance and credit insurance in the European Union.

Janus, H., 2014. A history of the Berne Union. TXF news. http://www.txfnews.com/News/Article/2672/A-history-of-the-Berne-Union

Jones, P. M., 2010. Trade credit insurance primer series on insurance. Global capital markets development Department: The World Bank.

Kerer, J., Tatin-Jaleran, C., Steinhauser, L., Helmsmuller, S., Kornherr, L., Debrah, E., ... Rakotoarimanana, A., 2016. The potential of meso-level climate risk insurance as a risk management tool for agricultural intermediaries: KfW Development Bank.

Krauss, R. M., 2011. The role and importance of export credit agencies. Institute of Brazilian business and public management issues, 7(10), 1-45.

Manova, K., and Yu, Z., 2014. Firms and Credit Constraints along the Global Value Chain: Processing Trade in China. Working Paper N1. Berne Union.

Olivella, P., and Vera-Hernandez, M., 2008. Testing for Adverse Selection into Private Medical Insurance. WP06/02: The Institute for Fiscal Studies.

Panagariya, A., 2000. Evaluating the case for export subsidies. Policy Research Working Paper 2276. doi:

Riestra, A., 2003. Credit Insurance in Europe. Impact, Measurement and Policy Recommendations. CEPS research report in finance and banking N 31: Centre for European Policy Studies.

Rothschild, M., and Stiglitz, J., 1976. Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information. The Quarterly Journal of Economics, 90(4), 629-649. doi:

Sandstrom, A., 2008. Political risk in credit evaluation. Empirical studies and survey results. WP N184. Helsinki: Swedish School of Economics and Business Administration.

Sayer, R., 2010. Berne Union Yearbook 2009. London.

Shi, P., Zhang, W., and Valdez, E. A., 2012. 2012, Testing Adverse Selection with Two-Dimensional Information: Evidence from the Singapore Auto Insurance Market. The Journal of Risk and Insurance, 79(4), 1077-1114. doi:

Sokolovska, O., and Sokolovskyi, D., 2015. Market and government failures related to the introduction of tax incentives regime. Economie si Sociologie: Revista Teoretico-Stiintifica, 4, 17-26.

Sozen, N., and Karan, B., 2014. M., Buyukkara, G., 2014, Should Eximbanks Finance Firms with Direct Export Credits? An Empirical Study on the Credit Risk of Turk Eximbank. Journal of Finance and Bank Management, 2(2), 133-163.

van der Veer, K., 2015a. Loss shocks and the quantity and price of private export credit insurance: Evidence from a global insurer. Working Paper N462. De Nederlandsche Bank.

van der Veer, K., 2015b. The Private Export Credit Insurance Effect on Trade. Journal of Risk and Insurance, 82(3), 601-624.

van Dijk, J., 2012. Export Credit Insurance: A literature review. WP N361473: Tilburg University.

Yalcin, E., 2015. How Do State‐Backed Investment Guarantees Shape Foreign Direct Investment. Berne Union Working Paper Series.

Annals of the Alexandru Ioan Cuza University - Economics

The Journal of "Alexandru Ioan Cuza" University from Iasi

Journal Information

Metrics

All Time Past Year Past 30 Days
Abstract Views 0 0 0
Full Text Views 329 319 26
PDF Downloads 138 135 11