English
A body of literature suggests that relationships affect contractual and market outcomes, but how does market structure affect the economics of relationships? This paper provides microeconometric evidence that upstream market structure affects the value of downstream relationships between retailers and buyers. In our setting, a monopoly ice manufacturer sells through independent retailers to fishermen buyers in Sierra Leone. We demonstrate that a shock that increases upstream competition among manufacturers improves the contractual terms offered by retailers to buyers. Under the monopolistic manufacturer, we document that late deliveries are common due to outside demand shocks. To help mitigate this uncertainty, retailers prioritize loyal customers when faced with shortages, and buyers respond by rarely switching retailers. When manufacturers compete, prices fall, quantities increase and services improve with fewer late deliveries. Entry upstream also disrupts collusion among retailers by increasing the
value of competing for buyer relationships. Competing retailers expand trade credit provision as a new basis for loyalty, and stable buyer relationships reemerge after a period of intense switching. The findings suggest that market structure shapes informal contractual institutions, and that competition can increase the value of relationships
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Working Paper
Date:
January 24, 2015
English

Despite their importance, there is limited evidence on how institutions can be strengthened. Evaluating the effects of specific reforms is complicated by the lack of exogenous variation in institutions, the difficulty of measuring institutional performance, and the temptation to "cherry pick" estimates from among the large number of indicators required to capture this multifaceted subject. We evaluate one attempt to make local institutions more democratic and egalitarian by imposing participation requirements for marginalized groups (including women) and test for learning-by-doing effects. We exploit the random assignment of a governance program in Sierra Leone, develop innovative real-world outcome measures, and use a preanalysis plan (PAP) to bind our hands against data mining. The intervention studied is a "community-driven development" program, which has become a popular strategy for foreign aid donors. We find positive short-run effects on local public goods and economic outcomes, but no evidence for sustained impacts on collective action, decision making, or the involvement of marginalized groups, suggesting that the intervention did not durably reshape local institutions. We discuss the practical trade-offs faced in implementing a PAP and show how in its absence we could have generated two divergent, equally erroneous interpretations of program impacts on institutions.

Published paper version available here.

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Published Paper
Date:
April 01, 2012
English

The World Bank and other donors dedicate sizeable portions of their portfolios to community driven development (CDD) projects, yet until recently there has been little rigorous evidence regarding the efficacy of this approach. By emphasizing local participation in and control over project implementation, CDD has come to be seen as an efficient and accountable mechanism to deliver local public goods. But CDD aims to do much more than this. Through intensive, long term facilitation, CDD aims to strengthen local institutions, make them more democratic and inclusive of marginalized groups, and enhance the capacity of communities to engage in collective action. This evaluation tests the extent to which CDD achieved these goals in Sierra Leone.

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Report
Date:
July 01, 2011

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