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Firm and Market Response to Saving Constraints: Evidence from the Kenyan Dairy Industry
Despite extensive evidence that preferences are often time-inconsistent, there is scarce evidence of willingness to pay for commitment. Multiple experimental designs in the Kenyan dairy sector show that: i) farmers are willing to pay sizable costs for infrequent payments, which provide commitment to save for lumpy expenses; ii) imperfect contract enforcement limits competition among buyers in the supply of infrequent payments; iii) in such a market, producers’ supply responses to price increases depend on both buyer credibility and payment frequency. Infrequent payments for frequently supplied goods and services are widespread and may provide stronger and more natural commitment than financial products not tied to income sources.
Written with Rocco Macchiavello, LSE