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Firm and market response to saving constraints: evidence from the Kenyan dairy industry


Casaburi, Lorenzo; Macchiavello, Rocco (2015). Firm and market response to saving constraints: evidence from the Kenyan dairy industry. BREAD Working Paper 468, Bureau for Research and Economic Analysis of Development (BREAD).

Abstract

This paper documents how saving constraints can spill over into other markets. When producers value saving devices, trustworthy buyers can offer them infrequent payments—a commitment tool—and purchase at a lower price. This affects the nature of competition in the output market. We present a model of this interlinked saving-output market for the case of the Kenyan dairy industry. Multiple data sources, experiments, and a calibration exercise support its microfoundations and predictions concerning: i) producers’ demand for infrequent payments; ii) an asymmetry across buyers in the ability to credibly commit to low frequency payments; iii) a segmented market equilibrium where buyers compete by providing either liquidity or saving services to producers; iv) low supply response to price increases. We discuss additional evidence from other contexts, including labor markets, and derive policy implications concerning contract enforcement, financial access, and market structure.

Abstract

This paper documents how saving constraints can spill over into other markets. When producers value saving devices, trustworthy buyers can offer them infrequent payments—a commitment tool—and purchase at a lower price. This affects the nature of competition in the output market. We present a model of this interlinked saving-output market for the case of the Kenyan dairy industry. Multiple data sources, experiments, and a calibration exercise support its microfoundations and predictions concerning: i) producers’ demand for infrequent payments; ii) an asymmetry across buyers in the ability to credibly commit to low frequency payments; iii) a segmented market equilibrium where buyers compete by providing either liquidity or saving services to producers; iv) low supply response to price increases. We discuss additional evidence from other contexts, including labor markets, and derive policy implications concerning contract enforcement, financial access, and market structure.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
JEL Classification:O12, L22, O16, Q13
Uncontrolled Keywords:Saving constraints, imperfect contract enforcement, interlinked transactions, competition, trust, agricultural markets
Language:English
Date:November 2015
Deposited On:31 May 2017 14:35
Last Modified:04 Jun 2017 19:07
Series Name:BREAD Working Paper
Number of Pages:63
Official URL:http://ibread.org/bread/working/468

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