Export Development Canada (EDC)provides insurance to Canadian exporters for their accounts receivable from foreign buyers.If EDC charges an insurance premium that reflects the average level of risk of the exporting firms,it is only the most risky firms that will tend to purchase insurance.This is an example of

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This scenario is an example of adverse selection. Adverse selection occurs when one party has more information than the other party in a transaction, leading to a tendency for the higher risk individuals to be more likely to purchase insurance. In this case, the exporting firms know their own level of risk better than EDC, and thus the higher-risk firms are more likely to purchase insurance.

Export Development Canada (EDC)provides Insurance to Canadian Exporters for Their