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Gotta Have Money to Make Money? Bargaining Behavior and Financial Need of Microentrepreneurs

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  • Morgan Hardy
  • Gisella Kagy
  • Lena Song

Abstract

Bargaining over real prices with microenterprise owners in Ghana, we show that sellers with less per capita household liquidity agree to lower sale prices. This relationship is robust across firms and within firms over time, even after controlling for a plethora of time-varying observables. A computerized bargaining experiment, with randomized initial payout sizes, corroborates the real-bargaining findings. This pattern can be explained by an application of classical bargaining theory that includes endowments and utility functions with decreasing absolute risk aversion. The potential poverty-multiplying implications of pricing behavior is a key frontier in understanding barriers to the profitability of microenterprises.

Suggested Citation

  • Morgan Hardy & Gisella Kagy & Lena Song, 2022. "Gotta Have Money to Make Money? Bargaining Behavior and Financial Need of Microentrepreneurs," American Economic Review: Insights, American Economic Association, vol. 4(1), pages 1-17, March.
    • Handle: RePEc:aea:aerins:v:4:y:2022:i:1:p:1-17
    DOI: 10.1257/aeri.20200723
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    More about this item

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology

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