Firm and Market Response to Saving Constraints: Evidence from the Kenyan Dairy Industry

66 Pages Posted: 1 Dec 2015

See all articles by Lorenzo Casaburi

Lorenzo Casaburi

Stanford Institute for Economic Policy Research

Rocco Macchiavello

University of Oxford - Nuffield College of Medicine; Centre for Economic Policy Research (CEPR)

Date Written: November 2015

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.

Keywords: Agricultural Markets, Competition, Imperfect Contract Enforcement, Interlinked Transactions, Saving Constraints, Trust

JEL Classification: L22, O12, O16, Q13

Suggested Citation

Casaburi, Lorenzo and Macchiavello, Rocco, Firm and Market Response to Saving Constraints: Evidence from the Kenyan Dairy Industry (November 2015). CEPR Discussion Paper No. DP10952. Available at SSRN: https://ssrn.com/abstract=2697565

Lorenzo Casaburi (Contact Author)

Stanford Institute for Economic Policy Research ( email )

579 Serra Mall at Galvez St.
Stanford, CA 94305-6015
United States

Rocco Macchiavello

University of Oxford - Nuffield College of Medicine ( email )

New Road
Oxford, OX1 1NF
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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