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NORGLOBAL-Norge - Global partner

Poverty traps in industries with low knowledge- and investment barriers

Tildelt: kr 2,1 mill.

We study barriers to investment in industries with low knowledge- and investment barriers. We focus on people who have the necessary knowledge and potential access to credit, but do not make apparently profitable investments. We conduct a case study of ri ckshaw cyclists who is renting a bicycle, rather than buying one. We find that one to two years of rent is sufficient to purchase a rickshaw that may last more than ten years. In explaining the lack of investments we investigate the potential role of high time-preference rates, and/or a high elasticity of the marginal utility of consumption. The latter may explain lack of savings among people with near subsistence levels of income. We use simple experiments to separate these two elements of the time-prefe rences of rickshaw cyclists. The second part of the project is a broader empirical investigation of barriers to investment in low-entry-cost industries, which will be conducted in the same area as the rickshaw study.

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NORGLOBAL-Norge - Global partner