Achieving Scale Collectively
This paper argues that rental market interactions allow small firms to increase their effective scale and mechanize production, even when each individual firm would be too small to invest in expensive machines. We conduct a novel 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. Our results show that the rental market is quantitatively important for mechanization and productivity since it provides a workaround for other market imperfections that keep firms small. We also show that the rental market shapes the effectiveness of policies to foster mechanization, such as subsidies to purchase machines.
We thank Kevin Donovan, Joe Kaboski, and Guo Xu for insightful discussions of the paper. We also thank Shameel Ahmad, David Atkin, Oriana Bandiera, Lauren Falcao Bergquist, Julieta Caunedo, Giorgio Chiovelli, Giacomo De Giorgi, Dave Donaldson, Ben Faber, Bob Gibbons, Selim Gulesci, Matt Kahn, Pablo Kurlat, David Lagakos, Ted Miguel, Monica Morlacco, Melanie Morten, Paul Niehaus, Andrea Prat, Adriano Rampini, Mark Rosenzweig, Martin Rotemberg, Nick Ryan, Meredith Startz, John Strauss, Eric Verhoogen, Jeff Weaver and Chris Woodruff as well as many seminar and conference participants for useful comments. We are also grateful to everyone at the Ministry of Trade in Uganda and BRAC who made this project possible, in particular Joshua Mutambi, Stephen Emuria, Munshi Sulaiman, Arianna Cima, Alessandro Giambrone, Maddalena Grignani, Sebastian Quaade and Monia Tomasella. Kasey Chatterji-Len, Usman Ghaus, Arushi Kaushik, Jung Hyuk Lee, Jeanne Sorin and Mitchell Vanvuren provided excellent research assistance. We gratefully acknowledge financial support from CEGA, IGC, PEDL, USC and the World Bank. This study received ethical approval from the Mildmay Research Ethics Committee of Uganda (MUREC), Reference No. 1106-2018. All errors are our own. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Vittorio Bassi & Raffaela Muoio & Tommaso Porzio & Ritwika Sen & Esau Tugume, 2022. "Achieving Scale Collectively," Econometrica, Econometric Society, vol. 90(6), pages 2937-2978, November. citation courtesy of