Competition and Relational Contracts: Evidence from Rwanda's Coffee Mills
October 28, 2015Poverty and Applied Microeconomics Seminar Series

Speaker: Ameet Morjaria  is an Assistant Professor at Northwestern University. More »

Abstract: We study the effects of competition (in procurement of raw materials) on relational contracts (RC) using Rwanda coffee mills as a case study. We measure several dimensions of RC between mills and farmers and find i) dispersion across mills in the use of RC, ii) RC practices are correlated with each other, iii) RC are correlated with capacity utilization and unit processing costs. We develop a model highlighting the relationship between competition, RC, mill and farmer outcomes. We estimate an engineering model for the optimal placement of mills to instrument for competition to test the predictions of the model. Competition reduces RC, lowers utilization and increases mill's processing costs. As a result of RC breakdown, we can reject a positive effect of competition on farmers, including increases in prices. The evidence rationalizes policies, such as zoning regulations, monopsony licensing and other entry restrictions, commonly observed in the developing world and emphasizes the importance of promoting contractual enforcement in agricultural value chains.

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Last Updated: Oct 23, 2015

The Poverty and Applied Micro Seminar Series is a weekly series hosted by the World Bank's research department. The series invites leading researchers in applied microeconomics from the fields of poverty, human development and public service delivery, agriculture and rural development, political economy, behavioral economics, private sector development, and a range of other fields to present the results of their most recent research in a seminar format. The full list of seminars can be viewed here.

Event Details
  • Date: October 28, 2015
  • Location: MC 5-100
  • Time: 12:30 - 2:00 PM
  • CONTACT: Anna Bonfield

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