Working Paper: CEPR ID: DP10952
Authors: Lorenzo Casaburi; Rocco Macchiavello
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
JEL Codes: L22; O12; O16; Q13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| saving constraints (D10) | producers' sales choices (L11) |
| saving constraints (D10) | buyers' competition strategies (L13) |
| producers' sales choices (L11) | equilibrium involving low frequency payments (D53) |
| buyers' competition strategies (L13) | equilibrium involving low frequency payments (D53) |
| saving constraints (D10) | lower prices accepted by producers (L11) |
| cooperative's ability to provide payments (P13) | lower prices charged than traders (D41) |