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Demand and Supply of Infrequent Payments as a Commitment Device: Evidence from Kenya

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  • Lorenzo Casaburi
  • Rocco Macchiavello

Abstract

Despite extensive evidence that preferences are often time-inconsistent, there is only scarce evidence of willingness to pay for commitment. Infrequent payments for frequently provided goods and services are a common feature of many markets and they may naturally provide commitment to save for lumpy expenses. Multiple experiments in the Kenyan dairy sector show that: (i) farmers are willing to incur sizable costs to receive infrequent payments as a commitment device, (ii) poor contract enforcement, however, limits competition among buyers in the supply of infrequent payments. We then present a model of demand and supply of infrequent payments and test its additional predictions.

Suggested Citation

  • Lorenzo Casaburi & Rocco Macchiavello, 2019. "Demand and Supply of Infrequent Payments as a Commitment Device: Evidence from Kenya," American Economic Review, American Economic Association, vol. 109(2), pages 523-555, February.
    • Handle: RePEc:aea:aecrev:v:109:y:2019:i:2:p:523-55
    Note: DOI: 10.1257/aer.20180281
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    More about this item

    JEL classification:

    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
    • L66 - Industrial Organization - - Industry Studies: Manufacturing - - - Food; Beverages; Cosmetics; Tobacco
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
    • Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness

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