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| Type | Working Paper |
| Scope | Discipline-based scholarship |
| Title | Firm and market response to saving constraints: evidence from the Kenyan dairy industry |
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| Institution | Bureau for Research and Economic Analysis of Development (BREAD) |
| Series Name | BREAD Working Paper |
| Number | 468 |
| Number of Pages | 63 |
| Date | 2015 |
| Abstract Text | 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. |
| Official URL | http://ibread.org/bread/working/468 |
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| Keywords | Saving constraints, imperfect contract enforcement, interlinked transactions, competition, trust, agricultural markets |