Competition and Entry in Agricultural Markets: Experimental Evidence from Kenya (with Michael Dinerstein)
American Economic Review, vol. 110, no. 12, 3705-3747, December 2020. [Lead Article]
African agricultural markets are characterized by low farmer revenues and high consumer food prices. Many have worried that this wedge is partially driven by imperfect competition among intermediaries. This paper provides experimental evidence from Kenya on intermediary market structure. Randomized cost shocks and demand subsidies are used to identify a structural model of market competition. Estimates reveal that traders act consistently with joint profit maximization and earn median markups of 39%. Exogenously-induced firm entry has negligible effects on prices, and low take- up of subsidized entry offers implies large fixed costs. We estimate that traders capture 82% of total surplus.
Sell Low and Buy High: Arbitrage and Local Price Effects in Kenyan Markets (with Marshall Burke and Edward Miguel)
Quarterly Journal of Economics, vol. 134, no. 2, 785–842, May 2019
Large and regular seasonal price fluctuations in local grain markets appear to offer African farmers substantial inter-temporal arbitrage opportunities, but these opportunities remain largely unexploited: small-scale farmers are commonly observed to “sell low and buy high” rather than the reverse. In a field experiment in Kenya, we show that credit market imperfections limit farmers’ abilities to move grain inter-temporally. Providing timely access to credit allows farmers to buy at lower prices and sell at higher prices, increasing farm revenues and generating a return on investment of 28%. To understand general equilibrium effects of these changes in behavior, we vary the density of loan offers across locations. We document significant effects of the credit intervention on seasonal price fluctuations in local grain markets, and show that these GE effects shape individual level profitability estimates. In contrast to existing experimental work, the results indicate a setting in which microcredit can improve firm profitability, and suggest that GE effects can substantially shape microcredit’s effectiveness. In particular, failure to consider these GE effects could lead to underestimates of the social welfare benefits of microcredit interventions.
Scaling Up RCTs: Theory and Evidence from Ugandan Agriculture (with Benjamin Faber, Thibault Fally, Matthias Hoelzlein, Edward Miguel, and Andres Rodriguez-Clare)
Interventions aimed at raising agricultural productivity in developing countries have been a centerpiece in the global fight against poverty. These policies are increasingly informed by evidence from field experiments and natural experiments, with the well-known limitation that findings based on local variation generally do not speak to the general equilibrium (GE) effects if the intervention were to be scaled up to the national level. In this paper, we develop a new frame- work to quantify these forces based on a combination of theory and rich but widely available microdata. We build a quantitative GE model of farm production and trade, and propose a new solution method in this environment for studying high-dimensional counterfactuals at the level of individual households in the macroeconomy. We then bring to bear microdata from Uganda to calibrate the model to all households populating the country. We use these building blocks to explore the average and distributional implications of local shocks compared to policies at scale, and quantify the underlying mechanisms.
Works in Progress
Market Linkages for Smallholder Farmers in Uganda (with Craig McIntosh)
Trade frictions in developing country food markets can have tremendous welfare costs because of the dual role of crops as the dominant income generator and the primary source of nutrition. In this paper, we utilize a multi-pronged experiment to assess the role of three potential barriers that may impede market depth: search costs, contractual risk, and credit constraints. We partner with one of Uganda’s largest private-sector brokerage companies to introduce a mobile trading platform designed to reduce search costs by linking buyers and sellers of agricultural commodities. Trading credit and transport cost guarantees are then randomized across traders and contracts to disentangle the role of contractual risk and credit constraints in hampering efficient exchange. We further collect biweekly market price information from 260 markets across Uganda and disseminate this information to farmers, intermediaries, and buyers. We exploit these prices surveys to estimate the impact of the platform on price dispersion and market efficiency. Large-scale farmer and trader surveys shed light on the distribution of welfare effects from this intervention.