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

Lorenzo Casaburi and Rocco Macchiavello ()
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Lorenzo Casaburi: Stanford University

CAGE Online Working Paper Series from Competitive Advantage in the Global Economy (CAGE)

Abstract: Failures in saving markets can spill over into other markets: When producers are saving constrained, trustworthy buyers can offer infrequent delayed payments—a saving tool—and purchase at a lower price, thus departing from standard trade credit logic. This paper develops a model of this interlinkage and tests it in the context of the Kenyan dairy industry. Multiple data sources, experiments, and a calibration exercise support the microfoundations and predictions of the model concerning: i) producers’ demand for infrequent payments; ii) heterogeneity across buyers in the ability to supply 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 provide additional evidence from other settings, including labor markets, and discuss policy implications concerning contract enforcement, financial access, and market structure.

Keywords: Saving Constraints; Imperfect Contract Enforcement; Interlinked Transactions; Competition; Trust; Agricultural Markets. JEL Classification: O12, L22, O16, Q13. (search for similar items in EconPapers)
Date: 2017
New Economics Papers: this item is included in nep-agr
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https://www2.warwick.ac.uk/fac/soc/economics/resea ... 017_macchiavello.pdf

Related works:
Working Paper: Firm and Market Response to Saving Constraints: Evidence from the Kenyan Dairy Industry (2018) Downloads
Working Paper: Firm and Market Response to Saving Constraints: Evidence from the Kenyan Dairy Industry (2015) Downloads
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