A Rationale for Export Insurance Subsidy

A Rationale for Export Insurance Subsidy

To discuss an optimal trade policy, a game-theoretic model can be useful. Cooper-Riezman (1989) founded a one-shot game model to explain how a government chooses a trade policy, such as either export subsidy or export quota. This paper extends that model to a repeated version, a form that has not been attempted before. Repetition of the trade policy game raises interesting questions about how to maximize discounted national welfare under a condition of uncertainty. Surprisingly, a government actually can implement another policy instrument, such as export insurance subsidy, to improve discounted national welfare. It is hoped that this paper can contribute to explaining why export insurance subsidy is implemented despite the strengthened trend of free trade.