Firm turnover under asymmetric information: Tanzania’s agro-dealer sector

Abstract

The authors study firm turnover and its consumer implications in a market characterized by asymmetric information. Using a 3 round census of agro-dealers in Tanzania's Morogoro Region, they document annual entry and exit rates of 33 and 17 percent, respectively. These rates are over double those reported for micro, small, and medium-enterprises operating in non-agricultural sectors in similar low-income countries.

To understand the effects of these high rates, the authors develop a theoretical model of firm turnover under information asymmetries and empirically test its predictions for farmers. They find that farmers' beliefs about agricultural input quality improve following an agro-dealer's exit, consistent with our model's prediction when farmers believe exiting agro-dealers sold low-quality agricultural inputs. Furthermore, the authors show that farmers who regularly purchase agricultural inputs from the same agro-dealer expect new market entrants to provide lower-quality agricultural inputs. These findings suggest that agro dealer turnover may shape farmers' technology adoption decisions. In markets with information asymmetries, repeated transactions with incumbents help farmers manage quality uncertainty

This paper is part of the Private Enterprise Development in Low Income Countries (PEDL) programme.

Citation

Naugler A and others. 'Firm turnover under asymmetric information: Tanzania's agro-dealer sector' PEDL: Working paper, GRP, 2026

Links

Firm turnover under asymmetric information: Tanzania's agro-dealer sector