Competition in Developing Countries

Paper Session

Friday, Jan. 6, 2017 10:15 AM – 12:15 PM

Hyatt Regency Chicago, Addams
Hosted By: Econometric Society
  • Chair: Rema Hanna, Harvard University

Contracting out the Last-Mile of Service Delivery: Subsidized Food Distribution in Indonesia

Rema Hanna
,
Harvard University
Abhijit Banerjee
,
Massachusetts Institute of Technology
Jordan Kyle
,
Columbia University
Benjamin Olken
,
Massachusetts Institute of Technology
Sudarno Sumarto
,
Acceleration of Poverty Reducation and SMERU Research Institute

Abstract

Outsourcing government service provision to private firms can improve efficiency and reduce rents, but there are risks that non-contractible quality will decline and that reform could be blocked by vested interests exactly where potential gains are greatest. We examine these issues by conducting a randomized field experiment in 572 Indonesian localities in which a procurement process was introduced that allowed citizens to bid to take over the implementation of a subsidized rice distribution program. This led 17 percent of treated locations to switch distributors. Introducing the possibility of outsourcing led to a 4.6 percent reduction in the markup paid by households. Quality did not suffer and, if anything, households reported the quality of the rice improved. Bidding committees may have avoided quality problems by choosing bidders who had relevant experience as traders, even if they proposed slightly higher prices. Mandating higher levels of competition by encouraging additional bidders further reduced prices. We document offsetting effects of having high rents at baseline: when the initial price charged was high and when baseline satisfaction levels were low, entry was higher and committees were more likely to replace the status quo distributor; but, incumbents measured to be more dishonest on an experimental measure of cheating were also more likely to block the outsourcing process. We find no effect on price or quality of providing information about program functioning without the opportunity to privatize, implying that the observed effect was not solely due to increased transparency. On net, the results suggest that contracting out has the potential to improve performance, though the magnitude of the effects may be partially muted due to push back from powerful elites.

Measuring and Addressing Market Power Issues in the Desludging Market in Senegal

Molly Lipscomb
,
University of Virginia
Jean-Francois Houde
,
Cornell University
Terence Johnson
,
University of Notre Dame
Laura Schechter
,
University of Wisconsin-Madison

Abstract

We test for collusion in the market for sanitation services in Dakar, Senegal by instituting real-time auctions and testing the impact of randomized differences in invitations to bid and other design elements. We ran over 3500 procurement auctions with 112 desludging operators. We find that the auctions are successful in instigating increased competition: the auctions reduce prices by 7%, and auction prices go down over time, although at a decreasing rate. Consistent with predictions of competitive auctions differences in input costs are passed through to the consumer and more invitations to the auctions result in lower prices.<br />
Participation in the auctions remains low at 18%. There is suggestive evidence that members of the largest and most organized garage collude through reducing participation when other members of the garage are invited to the same auction, but this effect is only present in the first year of the auction data. Operators who are part of the association of desludgers have lower costs and higher markups in the auctions. Members of the association pass through less of their transportation costs to the consumer and submit higher bids controlling for the garages to which they belong.

T.B.A. (To Be Arbitraged)? Extensive and Intensive Margin in Rice Trading in Madagascar

Hisaki Kono
,
Kyoto University

Abstract

Spatial arbitrage is the driving force for the law of one price, and traders are economic agents who are specializing in arbitrage. Using trader-level biweekly survey in Antananarivo, the capital city of Madagascar, we investigate the extensive margin and the intensive margin in response to the price differences across districts. We first show that only a fraction of traders visited other districts to purchase rice, and these active traders tend to be larger than passive traders who do not other districts but only purchase rice from rice sellers visiting the city from their local districts, suggesting the importance of heterogeneity in traders. Active traders on average did not respond to the price differences both in terms of extensive and intensive margin, though larger active traders were more responsive to the price differences in extensive margin. Passive traders were more responsive to the price differences. Our randomized experiment of providing price information through SMS suggests the importance both of price information and the trade link costs in arbitrage activities. We then propose a framework to infer trade costs and trade linkage costs of active traders, finding the importance of trade linkage costs in explaining trader's location choice.
JEL Classifications
  • O0 - General