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Do Microenterprises Maximize Profits? A Nonrandomized Vegetable-Market Experiment in India

Author

Listed:
  • Abhijit Banerjee
  • Greg Fischer
  • Dean S. Karlan
  • Matt Lowe
  • Benjamin Roth
  • Matthew Lowe

Abstract

We ran a nonrandomized, market-level experiment in Kolkata vegetable markets in which we subsidized vendors in some markets to sell additional produce. The vendors earned over 60% higher profits, excluding the value of the subsidy. Nevertheless, after the subsidy ended many vendors stopped selling the additional produce. Vendors knew about the profitable opportunity and demonstrated that they were capable of exploiting it without assistance. We conclude that their behavior meaningfully diverges from profit maximization when considering take-home pay, likely due to a combination of high marginal costs of effort and feared sanctions from breaking anti-competitive norms.

Suggested Citation

  • Abhijit Banerjee & Greg Fischer & Dean S. Karlan & Matt Lowe & Benjamin Roth & Matthew Lowe, 2026. "Do Microenterprises Maximize Profits? A Nonrandomized Vegetable-Market Experiment in India," CESifo Working Paper Series 12833, CESifo.
    • Handle: RePEc:ces:ceswps:_12833
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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