Optimal Arrangements for Distribution in Developing Markets: Theory and Evidence

William Fuchs, Brett Green and David Levine

American Economic Journal: Microeconomics, 2022, vol. 14, issue 1, 411-50

Abstract: A large literature examines demand-side barriers to product adoption. In this paper, we examine supply-side barriers in a setting with limited contract enforcement. We model the relationship between a distributor and its credit-constrained vendors. We show that the optimal self-enforcing arrangement 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 this arrangement is optimal both for profit-maximizing firms and for nonprofit 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 because vendors were unwilling to extend credit to customers and did not have access to a reliable savings technology. We discuss several recent technological innovations that help to overcome both of these challenges.

JEL-codes: C93 D86 G31 L14 L26 L31 O14 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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DOI: 10.1257/mic.20190085

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