IDEAS home Printed from https://ideas.repec.org/a/spr/elcore/v21y2021i2d10.1007_s10660-019-09385-0.html
   My bibliography  Save this article

Incentive mechanism to prevent moral hazard in online supply chain finance

Author

Listed:
  • Qiang Lin

    (Tianjin University)

  • Ying Peng

    (Tianjin University)

Abstract

With e-commerce developing rapidly, banks have begun to cooperate with online platform operators to finance small and medium-sized enterprises (SMEs). However, this process engenders its own unique financial risks. This study highlights and investigates the risks in a four-party supply chain that include a third-party logistics provider, a bank, a B2B platform operator, and SMEs. In an asymmetric information setting, the collusion mechanisms in this four-party online supply chain are also explored. Subsequently, a two-part incentive contract is designed that can reduce the moral hazard faced by the banks while addressing the trade-off between the payments to the platform operator for better credit rating information and the payments to the third-party logistics provider for supervising collateral storage. For further confirmation, a numerical analysis is presented. The results indicate that based on a suitable capital coefficient, the two-part incentive contract may prevent moral hazard in online supply chains. Furthermore, when the line of credit is high, the bank must increase the incentives for the B2B platform operator to avoid default risk and decrease the incentives for 3PL.

Suggested Citation

  • Qiang Lin & Ying Peng, 2021. "Incentive mechanism to prevent moral hazard in online supply chain finance," Electronic Commerce Research, Springer, vol. 21(2), pages 571-598, June.
    • Handle: RePEc:spr:elcore:v:21:y:2021:i:2:d:10.1007_s10660-019-09385-0
    DOI: 10.1007/s10660-019-09385-0
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10660-019-09385-0
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s10660-019-09385-0?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Didier Cossin & Tomas Hricko, 2003. "A Structural Analysis of Credit Risk With Risky Collateral: A Methodology for Haircut Determination," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 32(2), pages 243-282, July.
    2. Holmstrom, Bengt & Milgrom, Paul, 1994. "The Firm as an Incentive System," American Economic Review, American Economic Association, vol. 84(4), pages 972-991, September.
    3. Baliga, Sandeep & Sjostrom, Tomas, 1998. "Decentralization and Collusion," Journal of Economic Theory, Elsevier, vol. 83(2), pages 196-232, December.
    4. Heng, Michael S.H., 2001. "Implications of e-commerce for banking and finance," Serie Research Memoranda 0006, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
    5. Ohlson, Ja, 1980. "Financial Ratios And The Probabilistic Prediction Of Bankruptcy," Journal of Accounting Research, Wiley Blackwell, vol. 18(1), pages 109-131.
    6. Romero, Isidoro & Tejada, Pilar, 2011. "A multi-level approach to the study of production chains in the tourism sector," Tourism Management, Elsevier, vol. 32(2), pages 297-306.
    7. Esa Jokivuolle & Samu Peura, 2003. "Incorporating Collateral Value Uncertainty in Loss Given Default Estimates and Loan‐to‐value Ratios," European Financial Management, European Financial Management Association, vol. 9(3), pages 299-314, September.
    8. Meyer, Paul A & Pifer, Howard W, 1970. "Prediction of Bank Failures," Journal of Finance, American Finance Association, vol. 25(4), pages 853-868, September.
    9. Tirole, Jean, 1986. "Hierarchies and Bureaucracies: On the Role of Collusion in Organizations," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 2(2), pages 181-214, Fall.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Zhang, Lu & Cui, Li & Chen, Lujie & Dai, Jing & Jin, Ziyi & Wu, Hao, 2023. "A hybrid approach to explore the critical criteria of online supply chain finance to improve supply chain performance," International Journal of Production Economics, Elsevier, vol. 255(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Antoine Faure-Grimaud & Jean-Jacques Laffont & David Martimort, 2003. "Collusion, Delegation and Supervision with Soft Information," Review of Economic Studies, Oxford University Press, vol. 70(2), pages 253-279.
    2. Wernerfelt, Birger, 2003. "Indirect Adjustment-Costs Under Alternative Coordination Regimes," Working papers 4336-01, Massachusetts Institute of Technology (MIT), Sloan School of Management.
    3. Jonathan Treussard, 2005. "Life-Cycle Consumption Plans and Portfolio Policies in a Heath-Jarrow-Morton Economy," Boston University - Department of Economics - Working Papers Series WP2005-033, Boston University - Department of Economics.
    4. Angelucci, Charles & Russo, Antonio, 2012. "Moral Hazard in Hierarchies and Soft Information," TSE Working Papers 12-343, Toulouse School of Economics (TSE).
    5. repec:eee:labchp:v:3:y:1999:i:pb:p:2373-2437 is not listed on IDEAS
    6. Kolari, James & Glennon, Dennis & Shin, Hwan & Caputo, Michele, 2002. "Predicting large US commercial bank failures," Journal of Economics and Business, Elsevier, vol. 54(4), pages 361-387.
    7. Mohammad Mahdi Mousavi & Jamal Ouenniche & Kaoru Tone, 2023. "A dynamic performance evaluation of distress prediction models," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 42(4), pages 756-784, July.
    8. Che, Xiaogang & Huang, Yangguang & Zhang, Le, 2021. "Supervisory efficiency and collusion in a multiple-agent hierarchy," Games and Economic Behavior, Elsevier, vol. 130(C), pages 425-442.
    9. Che,Y.-K. & Kim,J., 2004. "Collusion-proof implementation of optimal mechanisms," Working papers 4, Wisconsin Madison - Social Systems.
    10. Peng Xu, 2016. "Analysis on Logistic Contract for FPLs Two-sided Bargaining Game in Agricultural Product Financing," Business and Management Research, Business and Management Research, Sciedu Press, vol. 5(3), pages 30-35, September.
    11. Slawomir Juszczyk & Rafal Balina, 2013. "Effectiveness of Polish and Foreign Disdcriminant Models," Diversity, Technology, and Innovation for Operational Competitiveness: Proceedings of the 2013 International Conference on Technology Innovation and Industrial Management,, ToKnowPress.
    12. Wolitzky Alexander, 2012. "Career Concerns and Performance Reporting in Optimal Incentive Contracts," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 12(1), pages 1-32, February.
    13. Thomas E. Mckee, 2000. "Developing a bankruptcy prediction model via rough sets theory," Intelligent Systems in Accounting, Finance and Management, John Wiley & Sons, Ltd., vol. 9(3), pages 159-173, September.
    14. Barlo, Mehmet & Ayca, Ozdogan, 2012. "Team beats collusion," MPRA Paper 37449, University Library of Munich, Germany.
    15. Rassoul Yazdipour & Richard Constand, 2010. "Predicting Firm Failure: A Behavioral Finance Perspective," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, vol. 14(3), pages 90-104, Fall.
    16. Baliga, Sandeep & Sjostrom, Tomas, 1998. "Decentralization and Collusion," Journal of Economic Theory, Elsevier, vol. 83(2), pages 196-232, December.
    17. Koen W. de Bock, 2017. "The best of two worlds: Balancing model strength and comprehensibility in business failure prediction using spline-rule ensembles," Post-Print hal-01588059, HAL.
    18. Robert Gibbons, 1998. "Incentives in Organizations," Journal of Economic Perspectives, American Economic Association, vol. 12(4), pages 115-132, Fall.
    19. Fernando Zambrano Farias & María del Carmen Valls Martínez & Pedro Antonio Martín-Cervantes, 2021. "Explanatory Factors of Business Failure: Literature Review and Global Trends," Sustainability, MDPI, vol. 13(18), pages 1-26, September.
    20. Dimitras, A. I. & Zanakis, S. H. & Zopounidis, C., 1996. "A survey of business failures with an emphasis on prediction methods and industrial applications," European Journal of Operational Research, Elsevier, vol. 90(3), pages 487-513, May.
    21. Roberto Burguet & Juan-José Ganuza & José García-Montalvo, 2016. "The Microeconomics of Corruption. A Review of Thirty Years of Research," Working Papers 908, Barcelona School of Economics.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:elcore:v:21:y:2021:i:2:d:10.1007_s10660-019-09385-0. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.