Paying More for Less: Why Don't Households in Tanzania Take Advantage of Bulk Discounts?

65 Pages Posted: 6 Oct 2016

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Brian Dillon

Cornell University - Charles H. Dyson School of Applied Economics and Management

Joachim De Weerdt

University of Antwerp - Institute of Development Policy and Management; KU Leuven - Centre for Institutions and Economic Performance (LICOS)

Ted O'Donoghue

Cornell University - Department of Economics

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Date Written: October 4, 2016

Abstract

Despite average per-capita consumption of roughly $1 per day, many Tanzanian households do not take advantage of bulk discounts when buying staple goods. Using transaction diaries covering nearly 57,000 purchases of 22 items by 1,499 households, we quantify the financial loss incurred (and the quantity of consumption forgone) by not taking advantage of bulk discounts that are available at frequently realized quantities. Using a conservative approach, we estimate that over two weeks the average household could spend 8.9% less on observed quantities (or consume 15.6% more at observed expenditure). We investigate several possible explanations for not buying in bulk, and find evidence consistent with inattention, worries about over-consumption, avoidance of social taxation, and household coordination problems. Contrary to prior work, we find little evidence that liquidity constraints prevent poor households from bulk purchasing.

Keywords: bulk discounts, liquidity constraints, inattention, social taxes, coordination costs, self-control problems, consumer behavior

JEL Classification: O12, D03, D12

Suggested Citation

Dillon, Brian M and De Weerdt, Joachim and O'Donoghue, Ted, Paying More for Less: Why Don't Households in Tanzania Take Advantage of Bulk Discounts? (October 4, 2016). Available at SSRN: https://ssrn.com/abstract=2847966 or http://dx.doi.org/10.2139/ssrn.2847966

Brian M Dillon (Contact Author)

Cornell University - Charles H. Dyson School of Applied Economics and Management ( email )

Ithaca, NY
United States

HOME PAGE: http://www.briandilloneconomics.com

Joachim De Weerdt

University of Antwerp - Institute of Development Policy and Management ( email )

City campus building S
Lange Sint Annastraat 7
Antwerp, 2000
Belgium

KU Leuven - Centre for Institutions and Economic Performance (LICOS) ( email )

Waaistraat 6 - box 3511
Leuven, 3000
Belgium

Ted O'Donoghue

Cornell University - Department of Economics ( email )

414 Uris Hall
Ithaca, NY 14853-7601
United States
607-255-6287 (Phone)
607-255-2818 (Fax)

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