It has been shown that missing markets—or an obstruction to an efficient free market—generate production distortions and therefore slow growth in low-income countries (Benjamin, 1992). Missing markets may be particularly problematic in countries such as Burundi that have been recovering from decades of civil conflict (Blattman and Miguel, 1992).
This project studies two sources of market failure that may be preventing farmers from engaging in agricultural markets: asymmetric information and incomplete contracts. Unlike many markets where the seller of an object tends to have better information about the production quality, in this context the researchers argue that buyers engage in price-discrimination because they have more information on the market value of goods. Second, farmers may be subject to a classic hold-up problem: with incomplete contracts, buyers may promise a price to sellers that they then try to renegotiate once the (often sizable) transport cost to visit the buyer has been incurred. Overcoming these issues in Burundi and improving farmers’ market integration is first order in order to improve the livelihoods of a population whose monthly income averages fifty USD. The researchers are partnering with One Acre Fund (OAF), a large non-governmental organization working with more than 100,000 households in Burundi, to run a large-scale randomized evaluation to 1) test for the presence of these sources of market failure; 2) attempt to overcome these challenges by i) providing downstream price information to farmers for different varieties of product and ii) setting up a pricing platform in which OAF acts as a guarantor of the prices offered on the platform. Results forthcoming.
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