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.
Last Updated: Oct 23, 2015