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Firm and Market Response to Saving Constraints: Evidence from the Kenyan Dairy Industry

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  • Casaburi, Lorenzo

    (Stanford University)

  • Macchiavello, Rocco

    (Warwick University)

Abstract

Failures in saving markets can spill over into other markets: When producers are saving constrained, trustworthy buyers can offer infrequent delayed payments—a saving tool—and purchase at a lower price, thus departing from standard trade credit logic. This paper develops a model of this interlinkage and tests it in the context of the Kenyan dairy industry. Multiple data sources, experiments, and a calibration exercise support the microfoundations and predictions of the model concerning: i) producers’ demand for infrequent payments; ii) heterogeneity across buyers in the ability to supply 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 provide additional evidence from other settings, including labor markets, and discuss policy implications concerning contract enforcement, financial access, and market structure.

Suggested Citation

  • Casaburi, Lorenzo & Macchiavello, Rocco, 2017. "Firm and Market Response to Saving Constraints: Evidence from the Kenyan Dairy Industry," CAGE Online Working Paper Series 322, Competitive Advantage in the Global Economy (CAGE).
    • Handle: RePEc:cge:wacage:322
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    Cited by:

    1. Macchiavello, Rocco & Miquel-Florensa, Josepa, 2017. "Vertical Integration and Relational Contracts: Evidence from the Costa Rica Coffee Chain," CAGE Online Working Paper Series 321, Competitive Advantage in the Global Economy (CAGE).
    2. Geng, Xin & Janssens, Wendy & Kramer, Berber N., 2017. "Liquid milk: Cash constraints and day-to-day intertemporal choice in financial diaries," IFPRI discussion papers 1602, International Food Policy Research Institute (IFPRI).

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    More about this item

    Keywords

    Saving Constraints; Imperfect Contract Enforcement; Interlinked Transactions; Competition; Trust; Agricultural Markets. JEL Classification: O12; L22; O16; Q13.;
    All these keywords.

    JEL classification:

    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness

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