Gotta Have Money to Make Money? Bargaining Behavior and Financial Need of Microentrepreneurs
- American Economic Review: Insights (Forthcoming)
Bargaining over real prices with microenterprise owners in Ghana, we show that sellers with
less per capita household liquidity agree to lower sale prices. This relationship is robust across
firms and within firms over time, even after controlling for a plethora of time-varying observables.
A computerized bargaining experiment, with randomized initial payout sizes, corroborates the
real-bargaining findings. This pattern can be explained by an application of classical bargaining
theory that includes endowments and utility functions with decreasing absolute risk aversion.
The potential poverty multiplying implications of pricing behavior is a key frontier in understanding barriers to the profitability of microenterprises.
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