Making Markets: Experiments in Agricultural Input Market Formation
Making markets is central to theories of development. In a randomized controlled trial, we vary the characteristics of agricultural input markets to test whether time-inconsistent preferences, hard or soft commitments, and liquidity are constraints to market formation. The results show that markets organized earlier raise market sales and increase input adoption. Simply providing market access did not have any effect on demand, but liquidity in later spot markets increased demand to similar levels as markets organized earlier. We conclude that market timing is a substitute for liquidity in input market organization and that input demand is relatively inelastic to commitment levels. (Project Pages: IPA ;JPAL )
Research and Evidence Summary
Fixing a Market Mismatch
Nurturing markets in areas where products or services are needed but conspicuously absent is about more than supply and demand.
In “missing markets,” where a product or service is needed but conspicuously absent, accounting for often-overlooked factors such as the timing of sales and access to financing can be critical to success, according to research by Kellogg’s Andrew Dillon and his colleague. They examined the lagging market for fertilizer in Mali and found that a measure as simple as organizing product fairs earlier in the agricultural season led to a significant uptick in sales among farmers. Those who used more fertilizer in turn saw a 52 percent increase in production.
Licensed to Deal: Auction Design for Market Creation in a Low-Income Country
We study auction design where business licenses for new markets are sold to firms. The experiment varies two auction design choices: the auction mechanism and the pre-bid information provided to bidders. The results suggest that: i) open auctions, in which bidders implicitly share information with their peers, have 61 percent lower mean bid prices and 67 percent lower bid variance than closed auctions, in which bidders bid secretly; ii) bidding behavior is influenced by bidders’ ex-ante beliefs, resulting in lower but potentially more accurate valuations; and iii) real-stakes auctions reduce bids by a factor of five relative to non-incentivized auctions.
Upcoming Work
Predicting High-Demand Segments: Develop models to determine which villages and farmers exhibit highest potential demand for inputs.
Assessing Multi-Season Impact: Evaluate longer-term and cumulative effects of organizing VIFs across multiple agricultural seasons on market participation, input adoption, and productivity.
Optimizing Auction Mechanisms: Design and test auction protocols for VIFs, potentially incorporating reserve pricing and bidding strategies.
Quantifying Organic Input Demand: Estimate and characterize the demand for organic inputs offered to farmers during VIF events.
Evaluating Information Interventions: Measure impact of providing detailed recommendations to farmers during VIFs.