Motivating Supplier Performance: Financial Constraints, Information Delay, and Smart Contracts

Abstract

Few studies have investigated the delivery performance of suppliers in guarantor-intermediated trade finance with information delay in a multistage environment. This article examines a model of dynamic guarantee finance (DGF) where guarantee institutions can adjust guarantee rates as an order progresses through different stages in the trade process, and compare it with the uniform guarantee financing model (the guarantee rate remains constant over the process, UGF). In addition, we analyze the impact of information delay on the supplier's optimal delivery performance. The aim of this article is to provide a foundational understanding of the potential benefits associated with transitioning from uniform-rate pricing to dynamic-rate pricing in guarantor-intermediated trade finance. The results indicate that DGF can incentivize suppliers to enhance their delivery performance, with the incentive value increasing as the trade process becomes lengthier. However, information delay has a negative effect on the incentive value of DGF. Smart contracts can complement DGF by accelerating the process of information verification. These findings provide guidance for the effective implementation of contract innovations (such as DGF) in guarantor-intermediated trade finance and highlight how the dynamic trade process and information delay impact the supplier's delivery performance.