Sell Low and Buy High: Arbitrage and Local Price Effects in Kenyan Markets / Marshall Burke, Lauren Falcao Bergquist, Edward Miguel.

Format:

Book

Author/Creator:

Burke, Marshall.

Contributor:

National Bureau of Economic Research.

Bergquist, Lauren Falcao.

Miguel, Edward.

Series:

Working Paper Series (National Bureau of Economic Research) no. w24476.

NBER working paper series no. w24476

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Sell Low and Buy High

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2018.

Summary:

Large and regular seasonal price fluctuations in local grain markets appear to offer African farmers substantial inter-temporal arbitrage opportunities, but these opportunities remain largely unexploited: small-scale farmers are commonly observed to "sell low and buy high" rather than the reverse. In a field experiment in Kenya, we show that credit market imperfections limit farmers' abilities to move grain inter-temporally. Providing timely access to credit allows farmers to buy at lower prices and sell at higher prices, increasing farm revenues and generating a return on investment of 28%. To understand general equilibrium effects of these changes in behavior, we vary the density of loan offers across locations. We document significant effects of the credit intervention on seasonal price fluctuations in local grain markets, and show that these GE effects shape individual level profitability estimates. In contrast to existing experimental work, the results indicate a setting in which microcredit can improve firm profitability, and suggest that GE effects can substantially shape microcredit's effectiveness. In particular, failure to consider these GE effects could lead to underestimates of the social welfare benefits of microcredit interventions.

Notes:

Print version record

April 2018.