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

Rocco Macchiavello and Lorenzo Casaburi

No 10952, CEPR Discussion Papers from Centre for Economic Policy Research

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 (search for similar items in EconPapers)
JEL-codes: L22 O12 O16 Q13 (search for similar items in EconPapers)
Date: 2015-11
New Economics Papers: this item is included in nep-com
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Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Firm and Market Response to Saving Constraints: Evidence from the Kenyan Dairy Industry (2018)
Working Paper: Firm and Market Response to Saving Constraints: Evidence from the Kenyan Dairy Industry (2017)
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