Incentive and Supervisory Mechanism in Inventory Financing: Risks and Moral Hazard

Peng XU

Abstract


This paper investigates a bank’s incentive and supervisory mechanism to a third party logistics firm (TPL) during inventory financing. Incentive and supervisory mechanism plays two important roles in this model: to control risks and to mitigate moral hazards. Using the principal-agent model, we discover a few significant conclusions, which are helpful to enhance the bank’s enthusiasm of developing the business. In particular, we show when the SME joins the bank to design the mechanism, assistance participation is more efficient than cooperation participation in increasing the bank’s profits and inducing the TPL’s effort.

Keywords


Inventory financing, Incentive mechanism, Supervisory mechanism, Bank, SME, Third party logistics (TPLs)


DOI
10.12783/dtcse/cscbd2019/30036

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