Abstract: There exists the asymmetric information in supply chain management. Information asymmetry could cause adverse selection and moral hazard which often coexist. Trade credit is not only an effective short-term financing channel but also a kind of incentive and coordination mechanism in the supply chain. The incentive effect of trade credit on the supply chain is considered under the coexistence of adverse selection and moral hazard. In the two-tier supply chain system consisting of a manufacturer and a retailer, the manufacturer provides trade credit to the retailer, allowing the retailer to delay payment for goods.Based on game theory and incentive mechanism theory, the manufacturer provides the retailerwith trade credit contract menu {t,T} whichincludes trade credit period t and transfer payment T. The contract menu couldencourage the retailer to reveal its true inventory holding cost information and improve its sales effort level. First, we construct trade credit incentive modelsunder single-information asymmetry (moral hazard). Based on this, trade credit incentive models are built under dual asymmetric information. The corresponding optimal trade credit contracts are obtained by adopting the method of extremum principle and mathematical programming. Further, the retailer's optimal sales efforts level and optimal order quantity are deduced. Under the two different information structures, the optimal decisions of supply chain members and the profits of the two members and the whole system are compared, and then the incentive effects of trade credit are discussed. By numerical simulation, the effectiveness of the optimal trade credit contract is verifiecl and then the influence of the retailer's inventory holding costs on the contract parameters, the retailer's decision variables and the profits of the supply chain,is analyzed. The results show that the reasonably designed trade credit contracts could motivate the retailer to disclose its real cost and also inspire the retailer to make enough efforts.

Key words: dual asymmetric information, trade credit, supply chain management, incentive