40 Pages Posted: 24 Apr 2017
Date Written: April 23, 2017
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: 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