Gotta' Have Money to Make Money? Bargaining Behavior and Financial Need of Microentrepreneurs
Abstract: Bargaining over purchase prices with microenterprise owners in Ghana, we show that poorer microentrepreneurs agree to significantly lower prices than wealthier firm owners. This relationship is robust to controlling for a plethora of observables, including owner fixed effects across two rounds of panel data. A computerized bargaining experiment on the same sample, with randomized initial endowment, corroborates our real-bargaining panel findings. A simple extension of classic bargaining theory to include endowments with Constant Relative Risk Aversion (CRRA) preferences yields a similar prediction. Further exploration of this "need-bargaining'' relationship is a key frontier in understanding barriers to the profitability of microenterprises.
