Demand and Supply of Infrequent Payments as a Commitment Device: Evidence from Kenya

Abstract

Despite extensive evidence that preferences are often time-inconsistent, there is only scarce evidence of willingness to pay for commitment. Infrequent payments for frequently provided goods and services are a common feature of many markets and they may naturally provide commitment to save for lumpy expenses. Multiple experiments in the Kenyan dairy sector show that: (i) farmers are willing to incur sizable costs to receive infrequent payments as a commitment device, (ii) poor contract enforcement, however, limits competition among buyers in the supply of infrequent payments. We then present a model of demand and supply of infrequent payments and test its additional predictions. (JEL K12, L66, O13, O17, Q12, Q13)