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- Title
A CHOICE THEORETIC MODEL OF THE OPTIMAL USE AND ISSUANCE OF TRADE CREDIT.
- Authors
Policano, Andrew J.
- Abstract
This paper develops an extended inventory theoretic model for the purpose of analyzing the optimal use and issuance of trade credit. One significant result is that the incentives which induce credit use can stem from the existence of positive payments costs associated with commodity transactions and from the existence of positive per unit cost associated with storing commodities. A further important result is that the cost charged by the firm in return for its issuance of credit consists of two components, an interest charge reflecting the loss in firm earning asset holdings, and a risk premium reflecting the possibility of default on the part of the household.
- Subjects
CREDIT; COMMODITY exchanges
- Publication
Economic Inquiry, 1977, Vol 15, Issue 2, p166
- ISSN
0095-2583
- Publication type
Article
- DOI
10.1111/j.1465-7295.1977.tb00464.x