Optimal Arrangements for Distribution in Developing Markets: Theory and Evidence

40 Pages Posted: 24 Apr 2017  

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: April 23, 2017

Abstract

In addressing the product adoption puzzle, the literature has focused primarily on demand-side barriers. In this paper, we attempt to address frictions on the supply side. In particular, we model the relationship between a producer or distributor and its vendors, where credit constraints and contract enforceability present challenges for distribution. We show that providing vendors with an initial endowment of the good and the option to buy additional units at a fixed price is an optimal way in which to overcome these frictions. The arrangement is straightforward to implement and is optimal both for non-profit organizations with limited resources and for profit-maximizing firms. We test the arrangement using a field experiment in rural Uganda. We find that the optimal arrangement increases sales by 3-4 times compared to a standard fixed-price contract.

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 (April 23, 2017). 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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