Market integration and pro-social behaviour in rural Liberia

There is a long-standing debate on whether access to markets may change pro-social preferences and as a result undermine informal support structures prevalent in many developing country settings. This study presents empirical evidence on the relation between market integration and pro-social behaviour among rural households in Liberia. This is particularly relevant in light of recent emphasis on promoting agricultural development through connecting small-scale farmers to markets and value chains. We use data from two lab-in-the-field experiments to measure preferences for altruism and fairness towards fellow villagers and traders from a provincial market and combine the experiments with household survey data. We define market integration as the share of consumption bought at the market. The regression analysis is based on Tobit and 2SLS Tobit models using chief characteristics and predicted food consumption expenditures as instrumental variables. Our study finds that increased levels of market integration have no robust impact on altruistic behaviour, as represented by amounts send in the dictator game, but are associated with lower offers in the ultimatum game. Our findings support the idea that market integration makes people act more economically rational, especially when matched with traders. The study provides new evidence that contrary to popular belief, markets do not crowd out norms of generosity or fairness, or lead to some sort of negative externality by changing norms and preferences but rather strengthen strategic considerations and behaviour.

Keywords: market integration, altruism, fairness, lab-in the-field experiment, Liberia

JEL Classification: A13, C93, O12