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Valuation and Efficient Allocation of GSM Export Credit Guarantees

Author

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  • Diersen, Matthew A.
  • Sherrick, Bruce J.

Abstract

Estimates of country-level loan default distributions are developed and used in a loan guarantee model to value the contingent liability of USDA's General Sales Manager (GSM) export credit guarantee portfolio. The results quantify the relationship between increasing guarantee coverage and the resulting actuarial liability to the government. Optimal coverage levels and optimal country-level allocations are determined for given policy objectives and coverage totals. Findings reveal that the government's allocation of country guarantees is risk-inefficient; and guidance is provided for making risk-efficient allocations for any program size.

Suggested Citation

  • Diersen, Matthew A. & Sherrick, Bruce J., 2005. "Valuation and Efficient Allocation of GSM Export Credit Guarantees," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 30(1), pages 1-16, April.
    • Handle: RePEc:ags:jlaare:30781
    DOI: 10.22004/ag.econ.30781
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    References listed on IDEAS

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    1. Mody, Ashoka & Patro, Dilip K, 1996. "Valuing and Accounting for Loan Guarantees," The World Bank Research Observer, World Bank, vol. 11(1), pages 119-142, February.
    2. Dahl, Bruce L. & Wilson, William W. & Gustafson, Cole R., 1999. "Option Values For Provisions In Export Credit Guarantees," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 24(2), pages 1-19, December.
    3. Sebastian T. Schich, 1997. "An Option-Pricing Approach to the Costs of Export Credit Insurance," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 22(1), pages 43-58, June.
    4. Wilson, William W. & Yang, Seung-Ryong, 1994. "Impacts of Wheat Export Strategies on Market Shares," Agricultural Economics Reports 23387, North Dakota State University, Department of Agribusiness and Applied Economics.
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    Agricultural Finance;

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