Working Papers

Firm Heterogeneity, Demand for Quality and Prices: Evidence from India (Job Market Paper) [pdf]

Abstract: Markups vary systematically across firms and are an important cause of productivity dispersion. However, whether markup dispersion represents misallocation depends on sources driving the dispersion. This paper provides evidence on the role of demand-side factors in shaping the dispersion of markups. Using data on Indian manufacturing firms, I first document two key correlations: prices and markups are increasing in firm size. I then explore how these correlations are driven by two factors: the assortative matching of wealthier consumers to larger firms, and the lower demand elasticity of wealthier consumers. Guided by this observation, I examine how firms adjust prices to income shocks to poor households. Using weather-driven exogenous changes to local rural income, I find that average prices decrease when demand from poor households increases relative to wealthier households. These effects are driven by changes in markups for firms that sell to both rich and poor households. Higher rural income changes the demand composition and increases the demand elasticity for these firms, and they lower markups in response. The results are supportive of the demand-based markup channel: selling to wealthier and less demand elastic households leads larger firms to charge higher markups. The channel accounts for at least 8 percent of the observed productivity dispersion across the Indian manufacturing sector.

Shocks and Technology Adoption: Evidence from Electronic Payment Systems (with Nicolas Crouzet and Filippo Mezzanotti) [pdf]

Abstract: The diffusion of technologies characterized by positive adoption externalities --- such as network-based technologies --- can be hampered by coordination problems. Can temporary policy interventions help solve this issue? We provide evidence on this question by analyzing the adoption of a new payment technology --- electronic wallets --- in the wake of the 2016 Indian demonetization, a policy intervention that led to a large but temporary decline in the availability of cash. Consistent with a dynamic adoption model with externalities, we show that the temporary cash crunch caused a persistent increase in the growth rate of the user base, as opposed to simply an increase in its size. Estimation of the model suggests that the presence of positive externalities across retailers significantly boosted the adoption response. Furthermore, we show that the adoption response displays substantial state-dependence: areas where adoption externalities prior to the shock were likely to be stronger experienced higher long-term growth. Therefore, while large, temporary shocks help resolve coordination problems and spur adoption, they can also exacerbate initial differences.

Technology Adoption and Access to Credit via Mobile Phones (with Jacopo Ponticelli and Andrea Tesei) [pdf]

Abstract: Farmers in developing countries often lack access to timely and reliable information about modern technologies that are essential to improve agricultural productivity. The recent diffusion of mobile phones has the potential to overcome these barriers by making information available to those previously unconnected. In this paper we study the effect of mobile phone network expansion in rural India on adoption of high yielding variety seeds and chemical fertilizers. Our empirical strategy exploits geographical variation in the construction of mobile phone towers under a large government program targeting areas without existing coverage. To explore the role of mobile phones in mitigating information frictions we analyze the content of 1.4 million phone calls made by farmers to a major call center for agricultural advice. Farmers seek advice on which seed varieties and fertilizers better meet their needs and how to use them. We find that areas receiving mobile phone coverage experience higher adoption of these technologies. We also observe that farmers are often unaware of the eligibility criteria and loan terms offered by subsidized credit programs. Consistently, we find that areas receiving mobile phone coverage experience higher take-up of agricultural credit.

Credit Enforcement, Price of Quality and Inequality: Evidence from Indian Debt Recovery Tribunals [draft available soon]

Abstract: I exploit the staggered introduction of specialized bankruptcy courts across Indian states, that significantly improved the creditor’s recovery rate in the event of borrower’s bankruptcy, to estimate the effect of improved credit enforcement on real income inequality. Motivated by a set of stylized facts on household consumption and firm’s production, I propose a product quality channel linking differences in the consumption basket of rich and poor households to differences in firms’ production technologies — more productive and larger firms produce higher quality products, for which wealthier households have higher preference. Guided by this observation, I find that Indian judicial reform increased external borrowing for larger firms, allowing them to upgrade their technology and lower their cost of production. As products of larger firms are consumed more by wealthier households, lower production costs translate to lower prices for the rich relative to the poor. Together, the evidence indicates that financial reforms affect real income inequality by changing the price indices disproportionately across the income distribution.