UC Berkeley

This dissertation examines how information frictions play a role in fostering poverty, limiting firm growth and perpetuating weak institutions in low income settings. In contexts where markets and formal institutions are weak or not functioning optimally, informal economic systems play an important role. Networks and relationships are central to the existence of informal systems; therefore, exploring existing information constraints, understanding information diffusion and alleviating information frictions has the potential to significantly improve the livelihoods of these populations.

My dissertation looks at how formal and informal systems co-exist and more specifically whether reducing information frictions can improve welfare, taking both formal and informal channels into account. I study the interactions between formal and informal institutions and focus on information frictions in a variety of contexts, specifically in (1) trade and value chains in Kenya and Uganda (Chapter 1), (2) agriculture markets and technology adoption in India (Chapter 2) and (3) voting behaviors and government failures in low income populations of the USA (Chapter 3).

In Chapter 1, I focus on informal trade. In low- and middle-income countries, a large share of trade is conducted by small-scale informal traders – mostly women – and is missing from official trade statistics. Using the natural experiment of a border closing, a randomized con- trolled trial, and panel data collection, I study the role of information frictions in traders’ choices of markets and border crossings at the Kenyan-Ugandan border and the consequences for livelihoods and prices in agriculture markets. First, I show that traders’ choice of markets and routes is sticky. Second, some of this stickiness is driven by limited information about profitable arbitrage opportunities and true (tariff) costs of crossing the border. Third, I build a model incorporating these frictions, which I test using an RCT. I find that giving information on tariff costs and local prices to traders (via a cellphone platform) increases switching across markets and routes, leading to large increases in traders’ profits and signif- icant formalization of trade. Consistent with the model, information provision has general equilibrium effects – specifically, a reduction in consumer prices in agricultural markets. Taken together, the results point to the centrality of information frictions in informal trade and highlight the promise of new information technology to ameliorate them.

In Chapter 2, I look at the role of information frictions in limiting adoption of new agri- cultural technologies in developing countries. Efforts to improve learning involve spreading information from government agents to farmers. We show that when compared to this government approach, informing private input suppliers in India about a new seed variety increases farmer-level adoption by over 50 percent. Suppliers become more proactive in in- forming potential customers and carrying the new variety. They induce increased adoption by those with higher returns from the technology. Being motivated by expanded sales offers the most likely motive for these results.

In Chapter 3, I explore how information affects voting behavior. We study changes in voting, new voter registration, and candidate choice in response to a criminal government failure which exposed one in twelve households in Flint, MI to lead in their tap water. We compare changes in outcomes for voters who received home lead test results just before versus just after an election. We find that the Flint water crisis, widely understood as the result of institutional racism, caused stark racial divergence in political participation between Black and White voters. Black voters increased turnout, accelerated registration, and rejected the incumbent, while White voters did not change their voting behavior.