Econometrica

Journal Of The Econometric Society

An International Society for the Advancement of Economic
Theory in its Relation to Statistics and Mathematics

Edited by: Guido W. Imbens • Print ISSN: 0012-9682 • Online ISSN: 1468-0262

Econometrica: Nov, 2022, Volume 90, Issue 6

Achieving Scale Collectively

https://doi.org/10.3982/ECTA18773
p. 2937-2978

Vittorio Bassi, Raffaela Muoio, Tommaso Porzio, Ritwika Sen, Esau Tugume

Many firms in developing countries could be too small to adopt modern technology embodied in expensive production machines. This paper shows that rental market interactions allow these small firms to increase their effective scale and mechanize production. We conduct a survey of manufacturing firms in Uganda, which uncovers an active rental market for large machines between small firms in informal clusters. We then build an equilibrium model of firm behavior and estimate it with our data. We find that the rental market is quantitatively important for mechanization and productivity since it provides a workaround for other market imperfections that keep firms small. The rental market also shapes the effectiveness of development policies to foster mechanization, such as subsidies to purchase machines. Overall, our results point to the importance of taking into account firm‐to‐firm interactions within informal clusters to understand technology adoption in low income countries: focusing on the small scale of firms in isolation might be misleading.


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Supplemental Material

Supplement to "Achieving Scale Collectively"

Vittorio Bassi, Raffaela Muoio, Tommaso Porzio, Ritwika Sen, and Esau Tugume

This zip file contains the replication files to the manuscript.

Supplement to "Achieving Scale Collectively"

Vittorio Bassi, Raffaela Muoio, Tommaso Porzio, Ritwika Sen, and Esau Tugume

The Online Appendix is divided into four sections: Appendix A reports additional empirical results that expand on evidence presented in Section 3. Appendix B includes proofs and details on the model solution. In Appendix C, we detail the computation of calibrated parameters and moments that are not already described in the paper. Finally, in Appendix D we study the prevalence of the rental market across countries. A Supplemental Appendix not intended for publication can be found on the authors’ websites.