Julieta Caunedo from Cornell University will present "Economies of density and congestion in the sharing economy".
The advancement of information technology in the developing world is side-passing moral hazard problems that prevent the creation of rental markets for durable goods. In an intend to reap the benefits from sharing capital services across small-scale producers, governments have increasingly subsidized these rental markets. While interventions focused mostly on equal access concerns, little is known about their efficiency as well as unintended consequences. This paper is the first one to study them. We focus on subsidies to the creation of rental markets for agricultural equipment. Using our own census of 40000 farmers in India, we document that small-scale producers are rationed out by market providers and that a government subsidized first-come-first-served dispatch system grants small-scale producers’ timely access to equipment. It also induces competition among providers, lowers rental costs, and access to equipment services for low-productivity producers. Some of these inframarginal producers locate further away from providers on average, inducing equipment transportation costs that may well overturn the productivity gains from equipment access. Through a structural model of search in rental services and optimal service dispatch, we find that, despite higher available service capacity, a market deregulation would induce more congestion for small-scale farmers, i.e. longer wait times. Our findings imply that the government subsidies have delayed scale consolidation and the efficiency gains associated to them.