Optimal arrangements for distribution in developing markets: theory and evidence Articles uri icon

publication date

  • March 2022

start page

  • 411

end page

  • 450

issue

  • 1

volume

  • 14

International Standard Serial Number (ISSN)

  • 1945-7669

Electronic International Standard Serial Number (EISSN)

  • 1945-7685

abstract

  • A large literature examines demand-side barriers to product adoption. In this paper, we examine supply-side barriers in a setting with limited contract enforcement. We model the relationship between a distributor and its credit-constrained vendors. We show that the optimal self-enforcing arrangement can be implemented by providing vendors with a line of credit and the option to buy additional units at a fixed price. Moreover, the structure of this arrangement is optimal both for profit-maximizing firms and for nonprofit organizations with limited resources. We test the arrangement using a field experiment in rural Uganda. We find that the model-implied optimal arrangement increased distribution significantly compared to a standard contract. However, growth was lower than predicted by the model because vendors were unwilling to extend credit to customers and did not have access to a reliable savings technology. We discuss several recent technological innovations that help to overcome both of these challenges.

keywords

  • c93; d86; g31; l14; l26; l31; o14