Optimal Payment Contracts in Trade Relationships

Christian Fischer

VfS Annual Conference 2020 (Virtual Conference): Gender Economics from Verein für Socialpolitik / German Economic Association

Abstract: We study a seller's trade credit provision decision in a situation of repeated contracting with incomplete information over the buyer's payment propensity when the enforceability of formal contracts is uncertain. The payment terms of a transaction are selected in an inter-temporal trade-off between improving the quality of information acquisition and mitigating relationship breakdown risks. When contract enforcement institutions are weak, the optimal within-relationship provision dynamics of trade credit can be uniquely determined and depend on the share of patient buyers in the destination market as well as their access to liquidity. We obtain empirical evidence showing that in developing countries the relevance of trade credit in buyers' payment schedules has risen over-proportionally in recent years.

Keywords: Payment contracts; Trade credit; Trade dynamics; Relational contracts; Weak institutions (search for similar items in EconPapers)
JEL-codes: L14 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-cta and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/224564/1/vfs-2020-pid-39557.pdf (application/pdf)

Related works:
Working Paper: Optimal payment contracts in trade relationships (2020)
Working Paper: Optimal payment contracts in trade relationships (2020)
Working Paper: Optimal payment contracts in trade relationships (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc20:224564

Access Statistics for this paper

More papers in VfS Annual Conference 2020 (Virtual Conference): Gender Economics from Verein für Socialpolitik / German Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().