Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/214625
Authors: 
Fischer, Christian
Year of Publication: 
2020
Series/Report no.: 
DICE Discussion Paper 332
Abstract: 
Trade credit is one of the most important sources of short-term finance in buyer-seller transactions.This paper studies a seller's trade credit provision decision in a situation of repeated contracting withincomplete information over the buyer's ability and willingness of payment compliance when theenforceability of formal contracts is uncertain. We show that selecting the payment terms of a trans-action corresponds to managing an inter-temporal trade-off between improving the quality of infor-mation acquisition and mitigating relationship breakdown risks. The dynamically optimal sequenceof payment contracts can be uniquely determined provided that the quality of contract enforcementinstitutions is sufficiently low.
Subjects: 
Payment contracts
Trade credit
Trade dynamics
Relational contracts
Contract enforcement
JEL: 
L14
F34
G32
D83
ISBN: 
978-3-86304-331-5
Document Type: 
Working Paper

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