Demand and Supply of Infrequent Payments as a Commitment Device: Evidence from Kenya

Out­line

De­spite ex­ten­sive ev­i­dence that pref­er­ences are of­ten time-in­con­sis­tent, there is only scarce ev­i­dence of will­ing­ness to pay for com­mit­ment. In­fre­quent pay­ments for fre­quent­ly pro­vid­ed goods and ser­vices are a com­mon fea­ture of many mar­kets and they may nat­u­ral­ly pro­vide com­mit­ment to save for lumpy ex­pens­es. Mul­ti­ple ex­per­i­ments in the Kenyan dairy sec­tor show that: (i) farm­ers are will­ing to in­cur siz­able costs to re­ceive in­fre­quent pay­ments as a com­mit­ment de­vice, (ii) poor con­tract en­force­ment, how­ev­er, lim­its com­pe­ti­tion among buy­ers in the sup­ply of in­fre­quent pay­ments. We then present a mod­el of de­mand and sup­ply of in­fre­quent pay­ments and test its ad­di­tion­al pre­dic­tions.

Re­search Team

Author

Lorenzo Casaburi

Associate Professor of Development Economics

Zurich ZCED

Roc­co Mac­chi­avel­lo

De­part­ment of Man­age­ment, Lon­don School of Eco­nom­ics