Optimal Arrangements for Distribution in Developing Markets: Theory and Evidence

47 Pages Posted: 24 Apr 2017 Last revised: 17 May 2018

William Fuchs

UT Austin ; UC3M

Brett S. Green

University of California, Berkeley - Haas School of Business

David I. Levine

University of California, Berkeley - Economic Analysis & Policy Group

Date Written: May 14, 2018

Abstract

A large literature examines demand-side barriers to product adoption. In this paper, we examine frictions on the supply side. We model the relationship between a producer and its vendors, which features credit constraints and limited contract enforcement. We solve for the optimal self-enforcing arrangement and show that it can be implemented by providing vendors with a line of credit and the option to buy additional units at a fixed price. Moreover, the structure of the arrangement is optimal both for profit-maximizing firms and for non-profit organizations with limited resources. We test the arrangement using a field experiment in rural Uganda. We find that the model-implied optimal arrangement increased distribution significantly compared to a standard contract. However, growth was lower than predicted by the model due to (i) an unwillingness to extend credit to customers and (ii) the lack of a reliable savings technology.

Keywords: Product Adoption Puzzle, Relational Contracting, Dynamic Incentives

JEL Classification: I15, O1, D86, D23

Suggested Citation

Fuchs, William and Green, Brett S. and Levine, David I., Optimal Arrangements for Distribution in Developing Markets: Theory and Evidence (May 14, 2018). Available at SSRN: https://ssrn.com/abstract=2957288 or http://dx.doi.org/10.2139/ssrn.2957288

William Martin Fuchs

UT Austin ( email )

Red McCombs School of Business
Austin, TX 78712
United States

UC3M ( email )

Calle Madrid 126
Getafe, 28903
Spain

Brett S. Green (Contact Author)

University of California, Berkeley - Haas School of Business ( email )

2220 Piedmont Avenue
Berkeley, CA ca 94720
United States
5105759980 (Phone)

HOME PAGE: http://faculty.haas.berkeley.edu/bgreen/

David Ian Levine

University of California, Berkeley - Economic Analysis & Policy Group ( email )

Berkeley, CA 94720
United States
510-642-1697 (Phone)
510-643-1420 (Fax)

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