This setting lets you change the way you view articles. You can choose to have articles open in a dialog window, a new tab, or directly in the same window.
Open in Dialog
Open in New Tab
Open in same window
Open in New Tab
Open in same window
American Economic Review: Vol. 102 No. 3 (May 2012)
AER Volume. 102, Issue 3 | 
Previous ArticleNext Article
Sign up for Email Alerts Follow us on Twitter
AER Forthcoming Articles
Full-text Article
Previous ArticleNext Article
Expand
Quick Tools:
Print Article Summary Email Link to this Article Export CitationSign up for Email Alerts Follow us on Twitter
Explore:
AER Forthcoming Articles
Sustaining Production Chains through Financial Linkages
Article Citation
Kim, Se-Jik, and
Hyun Song Shin. 2012. "Sustaining Production Chains through Financial Linkages."
American Economic Review,
102(3): 402-06.
DOI: 10.1257/aer.102.3.402
DOI: 10.1257/aer.102.3.402
Abstract
The technological constraints on sustaining production chains have been discussed extensively by development economists, but the role of financial linkages has received less attention. In a model of recursive moral hazard for a manufacturing supply chain, we show that the structure of interlocking receivables and payables serve as the glue for the production chain that sustains complex manufacturing output. The inefficiency associated with recursive moral hazard can be mitigated through optimal delays in payments along the chain. However, efficiency requires large stocks of working capital, and invoice prices are high due to implicit amortization costs of inter-firm credit.
Article Full-Text Access
Full-text Article
Authors
Kim, Se-Jik (Seoul National U)
Shin, Hyun Song (Princeton U)
Shin, Hyun Song (Princeton U)
JEL Classifications
M11: Production Management
L14: Transactional Relationships; Contracts and Reputation; Networks
L14: Transactional Relationships; Contracts and Reputation; Networks
