Gotta Have Money to Make Money? Bargaining Behavior and Financial Need of Microentrepreneurs

Journal Article
Published on 8 October 2021

Working paper available through PEDL. Article forthcoming.

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.

Authors

Morgan Hardy

New York University, Abu Dhabi

Gisella Kagy

Vassar College

Lena Song

New York University