Do Microenterprises Maximize Profits? A Nonrandomized Vegetable-Market Experiment in India

We ran a nonrandomized, market-level experiment in Kolkata vegetable markets in which we subsidized vendors in some markets to sell additional produce. The vendors earned over 60% higher profits, excluding the value of the subsidy. Nevertheless, after the subsidy ended many vendors stopped selling the additional produce. Vendors knew about the profitable opportunity and demonstrated that they were capable of exploiting it without assistance. We conclude that their behavior meaningfully diverges from profit maximization when considering take-home pay, likely due to a combination of high marginal costs of effort and feared sanctions from breaking anti-competitive norms.