Gotta Have Money to Make Money? Bargaining Behavior and Financial Need of Microentrepreneurs
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Abstract
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.Citation
Hardy, Morgan, Gisella Kagy, and Lena Song. 2022. "Gotta Have Money to Make Money? Bargaining Behavior and Financial Need of Microentrepreneurs." American Economic Review: Insights, 4 (1): 1-17. DOI: 10.1257/aeri.20200723Additional Materials
JEL Classification
- D22 Firm Behavior: Empirical Analysis
- G51 Household Finance: Household Saving, Borrowing, Debt, and Wealth
- L25 Firm Performance: Size, Diversification, and Scope
- L26 Entrepreneurship
- O12 Microeconomic Analyses of Economic Development
- O14 Industrialization; Manufacturing and Service Industries; Choice of Technology