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.

Notes:

(Job Market Paper)