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Business Dynamics and Informal Contracts: Experimental Evidence from the Cowpea Street Food Sector in West Africa

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  • Otoo, Miriam
  • Fulton, Joan R.
  • Wu, Steven Y.
  • Ibro, Germaine

Abstract

We use field experiments in Niger to investigate the nature and efficiency of contractual structures in market transactions between kossai vendors and cowpea grinders (key input suppliers). Three contractual structures were employed: gift contract, standard price contract and discretionary bonus contract (most incomplete). Gift contracts and standard price contracts involve an upfront payment of grinding fees where discretionary bonus contracts involve payment after the quality of service is observed. Gift contracts were found to be the most ex-ante efficient with the highest acceptance rates. Discretionary bonus contracts (most incomplete) were the most ex-post efficient that is, resulted in the highest quality. Our results suggest that the degree of incompleteness of different contractual structures influences the outcome of market transactions in the cowpea street food sector in West Africa.

Suggested Citation

  • Otoo, Miriam & Fulton, Joan R. & Wu, Steven Y. & Ibro, Germaine, 2010. "Business Dynamics and Informal Contracts: Experimental Evidence from the Cowpea Street Food Sector in West Africa," 2010 Annual Meeting, July 25-27, 2010, Denver, Colorado 61458, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea10:61458
    DOI: 10.22004/ag.econ.61458
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    References listed on IDEAS

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    1. George Baker & Robert Gibbons & Kevin J. Murphy, 2002. "Relational Contracts and the Theory of the Firm," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(1), pages 39-84.
    2. Martin Brown & Armin Falk & Ernst Fehr, 2004. "Relational Contracts and the Nature of Market Interactions," Econometrica, Econometric Society, vol. 72(3), pages 747-780, May.
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