We analyze firm turnover (i.e., entry and exit) and its consumer implications in a market characterized by asymmetric information. Using a census of agro-dealers in Tanzania's Morogoro Region, we document annual entry and exit rates of 34 and 18 percent, respectively. These rates are more than double those reported for micro-, small-, and medium-enterprises operating in non-agricultural sectors in similar low-income countries. Agro-dealer exit is more common in highly competitive markets and is not well predicted by observable agro-dealer characteristics. Motivated by these patterns, we develop a theoretical model of firm turnover under information asymmetries and test its predictions empirically. We find that farmers' beliefs about agricultural input quality improve following an agro-dealer's exit, consistent with our model's prediction that farmers believe exiting agro-dealers sold low-quality agricultural inputs. Moreover, farmers who regularly purchase agricultural inputs from the same agro-dealer expect new market entrants to provide lower-quality agricultural inputs. These findings suggest that agro-dealer turnover critically shapes farmers' technology adoption decisions. In markets with information asymmetries, repeated transactions with incumbents help farmers manage quality uncertainty.
Conference Presentations:
This paper examines the unintended consequences of size-dependent formalization policies that raise the cost of informality for firms, focusing on a provision in Vietnam’s Labor Code 2012. The policy sharply increases the financial penalty for firms with at least 10 formally contracted, paid employees that fail to comply with pre-existing labor regulations at this threshold. I develop a profit maximization model illustrating how this policy incentivizes firms to avoid compliance by substituting toward unregulated labor arrangements or partially formalizing. Using Vietnamese micro-, small-, and medium-enterprise panel data, I employ a difference-in-discontinuities design to estimate the causal effect of the increased financial penalty at the threshold. McCrary density tests indicate no evidence of bunching below the 10 formal, paid-employee threshold post-policy. Instead, firms adjusted along alternative margins: those just below the threshold increased their reliance on unpaid labor while those just above it registered with the government but continued using informal labor. Firms just above the threshold also realized profit and labor productivity gains. These findings show that threshold-based labor policies can lead to selective―rather than comprehensivee―firm formalization, suggesting informality is restructured instead of eliminated.
This research examines Mexican immigrants’ motivations for crossing into the US to evaluate whether macroeconomic conditions affect these motivations. Using a data set of 44,017 Mexican migrants from 2010 through September 2016 and controlling for personal factors, results indicate economic motivations are moderated by US macroeconomic conditions and in the expected way, i.e. the US unemployment rate (growth rate) is inversely (directly) associated with economic motivations to cross into the US and positively associated with non-economic (familial-based) motivations. Results also suggest that Mexican migrants coming to the US in the wake of the Great Recession (i.e. in 2010 and 2011) were much less likely to cross for economic reasons than those crossing in 2015 and 2016, while those crossing in 2013 and 2014 were more likely to cross for economic reasons. We suspect nationalistic rhetoric amplified by Trump’s campaign for US president may have crowded out economic motivations as immigrants expected the proposed anti-immigrant policies to reduce the availability of US economic opportunities. Similar support for macroeconomic “push” effects from the Mexican economy were not found. Additionally, economic and familial-based motivations for migrating appear to be substitutes and both respond to US macroeconomic conditions though in opposite ways.