The effect of information on bargaining, corruption and trade: evidence from small agriculture traders in Kenya and Uganda

Photo Credit: Sauti Africa

Abstract 

This research project focuses on a trade barrier for small-scale agriculture cross-border traders. These traders face harassment and pay bribes to cross the border, increasing their -already substantial- trade costs. An asymmetry of information between agriculture traders and border agents about what traders should legally be paying may play a significant role in fueling corruption. This project aims to understand the role played by corruption in agriculture cross-border trading and shed light on what the process of bargaining for a bribe looks like. Through a RCT, we test whether giving information to traders about the correct tariff can affect bargaining, lower the value of bribes paid at the border and affect small-scale agriculture traders’ choices of trade route. Such reductions in trade costs may increase and/or formalize trade, affect agriculture traders’ behaviors, increase traders’ profit and have
spillover effects along the value chain, e.g., on farmers and/or affect prices in local markets. We also conduct an audit study to collect information about border agents’ behaviors and demand for bribes.

Policy Issue 

Governments within member states from the East African Community (EAC) and the Common Market for East and Southern Africa (COMESA) have invested significantly in programs to facilitate and formalize trade such as One-Stop-Border-Posts, Simplified Trade Regimes (STRs) and Quality standard certification. However, not much is known about the small-scale agriculture cross-border traders who cross the border multiple times a week to source products they can sell at a higher price on the other side of the border, especially when these traders contribute to informal cross-border trade not recorded in official trade statistics.  In addition, many of these traders do not have updated information about border taxes and procedures or are not aware of policies such as STRs which have been implemented to reduce high trade costs. This lack of information leaves them vulnerable to increased border-crossing costs and corruption. Therefore, this study aims to build an evidence base on how agricultural traders’ behavior can affect farmers’ behaviors and/or market prices, offers insights on corruption in cross-border trade, and adds to the literature on trade costs and their effects on agriculture trade.

Context of the Evaluation 

This study will take place on the Kenya-Uganda border.  The researchers will partner with Sauti Africa, a mobile-based trade information and social accountability platform for Small and Medium Enterprises engaged in cross-border trade in the East Africa Community (EAC), both to collect the data and to provide the treatment.

Details of the Intervention 

The researchers focus on agriculture small-scale cross border traders in an attempt to understand how their trading behaviors are governed by corruption and bargaining. They will test whether reducing information asymmetry by giving information to agriculture traders about the correct tax can reduce corruption and trade costs and affect their behaviors as well as changes along the value chain such as (i) traders’ informal/formal trade route choice, (ii) their choice of farmers/suppliers, (iii) their choice of markets to sell in, (iv) increase traders’ profit and (v) changes in market prices.

The main research questions are:

(1) How does information affect the bargaining process between agriculture traders and border agents, resulting bribes/tariffs paid and trade decisions (quantity trade and routes)?

(2) Does this have spillover effects on other actors of the agriculture value chain (i.e., farmers) and market linkages (agriculture cross-border traders’ sourcing decisions, choice of markets and market prices)?

The researchers will collect continuous data over time for 1000 traders, focusing on trading behaviors, bargaining, and bribes paid for agriculture traders via daily survey text messages and surveys administered through a data collection team. 500 of these traders will make up the “treatment” group; “treatment” farmers will receive free access to the Sauti Africa platform, allowing them to receive information about the actual tariff they should be paying at the border each time they are exporting/importing agriculture products. The researchers will identify the impact of information given to the agriculture trader on bargaining, equilibrium bribe, corruption and agriculture product traded.

Results and Policy Implications 

Evaluation ongoing, results forthcoming.