Ethnic Diversity and Market Mechanism: A Trading Pit Market Experiment in Kenya

Abstract

In this research, we conducted a face-to-face trading pit market experiment in Kenya to investigate how ethnic diversity in market participants affects the performance of market mechanism. The subjects in our experiment were from three major ethnic groups in Kenya-Luo, Kikuyu, and Kalenjin. In the trading sessions with Luo and/or Kikuyu subjects only, we did not observe convergence of trading prices or allocations. In the trading sessions including Kalenjin subjects who were generally described as conservative and cautious, however, trading prices and allocations converged to the equitable equilibrium. Our results suggest that ethnic differences may have a large impact on outcomes of market trading, but even the face-to-face bilateral trading between people of different ethnic groups does not necessarily cause large inequalities of income or welfare.