Optimal credit period and green consumption policies with cash-credit payments under asymmetric information

To encourage green consumption, companies that produce renewable energy products often offer customers cash-credit payments, which allow the customers to pay cash payments when signing a contract and grant the customers a credit payment after a certain period. However, granting credit also inevitably negatively impacts the capital opportunity cost and default risk, especially when customers are privileged with private information concerning their own credit status. Hence, the design of cash-credit payments is increasingly recognized as important in increasing the profitability of companies. Additionally, the supplier has three common mechanisms to address credit default problems: the screening, checking and insurance mechanisms. Under these three mechanisms, we develop a supplier-customer chain in which the customer's credit level, which is either high or low, is the customer's private information. We find that compared with symmetric information, the high-credit customer's credit period and green consumption are restricted and limited, while the those of the low-credit customer are maintained in the screening mechanism, promoted in the checking mechanism and lessened in the insurance mechanism. We identify the conditions under which the supplier decides to choose each of the mechanisms. Finally, we show that if the market credit status is relatively poor, the supplier prefers to adopt only the screening mechanism. Otherwise, the supplier attains more leeway to decide whether to transfer risk via the insurance mechanism or to undertake risk via the screening and checking mechanisms based on the tension between the credit incentive effect and the default risk gap effect. (C) 2018 Elsevier Ltd. All rights reserved.