Professional credit guarantee principle-agent relationship model

Abstract

By using the allocation of guarantee rate saving as incentive mechanism and considering the external supervision mechanism in credit guarantee contract, the principal-agent relationships between professional credit guarantee institution and small and medium sized enterprise (SME) is investigated in this paper. It has been proved that external supervision mechanism could not change the optimal effort level of SME under the symmetric information, while, the professional guarantee institution by using effective external supervision mechanism under the asymmetric information could make SME choose higher effort level and increase the incentive strength of guarantee institution. With the external supervision being reinforced by professional credit guarantee institution, the incentive strength is much stronger and expected revenue is much higher, while, the agent cost is less. Suitable and effective external supervision can decrease the total guarantee cost of professional credit guarantee institution.