IDEAS home Printed from https://ideas.repec.org/p/cpr/ceprdp/11548.html
   My bibliography  Save this paper

Asymmetric Information and Middleman Margins: An Experiment with Indian Potato Farmers

Author

Listed:
  • Mookherjee, Dilip
  • Torero, Maximo
  • Mitra, Sandip
  • Visaria, Sujata

Abstract

In the Indian state of West Bengal, potato farmers sell to local middlemen be- cause they lack direct access to wholesale markets. High-frequency marketing surveys reveal large middleman margins and negligible pass-through from wholesale to farm- gate prices. Farmers are uninformed about downstream wholesale and retail prices. To test alternative models of farmer-middlemen trades, we conduct a fi eld experi- ment where farmers in randomly chosen villages are provided with wholesale price information. Information had negligible average e ffects on farmgate sales and rev- enues, but increased pass-through from wholesale to farmgate prices. These results are consistent with a model of ex post bargaining between farmers and village mid- dlemen where farmers also have the option of selling to other middlemen outside the village. They are inconsistent with models of risk-sharing contracts between middle- men and farmers, standard oligopolistic models of pass-through or search frictions.

Suggested Citation

  • Mookherjee, Dilip & Torero, Maximo & Mitra, Sandip & Visaria, Sujata, 2016. "Asymmetric Information and Middleman Margins: An Experiment with Indian Potato Farmers," CEPR Discussion Papers 11548, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:11548
    as

    Download full text from publisher

    File URL: https://cepr.org/publications/DP11548
    Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. James M. Malcomson, 2016. "Relational Incentive Contracts With Persistent Private Information," Econometrica, Econometric Society, vol. 84, pages 317-346, January.
    2. Maitra, Pushkar & Mitra, Sandip & Mookherjee, Dilip & Motta, Alberto & Visaria, Sujata, 2017. "Financing smallholder agriculture: An experiment with agent-intermediated microloans in India," Journal of Development Economics, Elsevier, vol. 127(C), pages 306-337.
    3. Christoph Saenger & Maximo Torero & Matin Qaim, 2014. "Impact of Third-party Contract Enforcement in Agricultural Markets-A Field Experiment in Vietnam," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 96(4), pages 1220-1238.
    4. Ethan Ligon & Jonathan P. Thomas & Tim Worrall, 2002. "Informal Insurance Arrangements with Limited Commitment: Theory and Evidence from Village Economies," Review of Economic Studies, Oxford University Press, vol. 69(1), pages 209-244.
    5. Nakasone, Eduardo, 2013. "The Role of Price Information in Agricultural Markets: Experimental Evidence from Rural Peru," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150418, Agricultural and Applied Economics Association.
    6. Rodrik, Dani & McMillan, Margaret & Horn Welch, Karen, 2002. "When Economic Reform Goes Wrong: Cashews in Mozambique," CEPR Discussion Papers 3519, C.E.P.R. Discussion Papers.
    7. Marina Halac, 2012. "Relational Contracts and the Value of Relationships," American Economic Review, American Economic Association, vol. 102(2), pages 750-779, April.
    8. Saenger, Christoph & Torero, Maximo & Qaim, Matin, 2016. "Impact of third-party enforcement of contracts in agricultural markets—A field experiment in Vietnam," IFPRI book chapters, in: Devaux, André & Torero, Maximo & Donovan, Jason & Horton, Douglas E. (ed.), Innovation for inclusive value-chain development: Successes and challenges, chapter 11, pages 343-374, International Food Policy Research Institute (IFPRI).
    9. Rocco Macchiavello & Ameet Morjaria, 2015. "The Value of Relationships: Evidence from a Supply Shock to Kenyan Rose Exports," American Economic Review, American Economic Association, vol. 105(9), pages 2911-2945, September.
    10. Morisset, Jacques, 1998. "Unfair Trade? The Increasing Gap between World and Domestic Prices in Commodity Markets during the Past 25 Years," The World Bank Economic Review, World Bank Group, vol. 12(3), pages 503-526, September.
    11. E. Glen Weyl & Michal Fabinger, 2013. "Pass-Through as an Economic Tool: Principles of Incidence under Imperfect Competition," Journal of Political Economy, University of Chicago Press, vol. 121(3), pages 528-583.
    12. Pranab Bardhan & Dilip Mookherjee, 2011. "Subsidized Farm Input Programs and Agricultural Performance: A Farm-Level Analysis of West Bengal's Green Revolution, 1982-1995," American Economic Journal: Applied Economics, American Economic Association, vol. 3(4), pages 186-214, October.
    13. Gita Gopinath & Oleg Itskhoki, 2011. "In Search of Real Rigidities," NBER Chapters, in: NBER Macroeconomics Annual 2010, volume 25, pages 261-309, National Bureau of Economic Research, Inc.
    14. Marcel Fafchamps & Ruth Vargas Hill, 2008. "Price Transmission and Trader Entry in Domestic Commodity Markets," Economic Development and Cultural Change, University of Chicago Press, vol. 56(4), pages 729-766, July.
    15. Céline Bonnet & Pierre Dubois, 2010. "Inference on vertical contracts between manufacturers and retailers allowing for nonlinear pricing and resale price maintenance," RAND Journal of Economics, RAND Corporation, vol. 41(1), pages 139-164, March.
    16. Blouin, Arthur & Macchiavello, Rocco, 2014. "Tropical Lending: International Prices, Strategic Default and Credit Constraints among Coffee Washing Stations," CAGE Online Working Paper Series 211, Competitive Advantage in the Global Economy (CAGE).
    17. Aparajita Goyal, 2010. "Information, Direct Access to Farmers, and Rural Market Performance in Central India," American Economic Journal: Applied Economics, American Economic Association, vol. 2(3), pages 22-45, July.
    18. Sofia Berto Villas-Boas, 2007. "Vertical Relationships between Manufacturers and Retailers: Inference with Limited Data," Review of Economic Studies, Oxford University Press, vol. 74(2), pages 625-652.
    19. Donaldson, Dave & Atkin, David, 2015. "Who?s Getting Globalized? The Size and Implications of Intra-national Trade Costs," CEPR Discussion Papers 10759, C.E.P.R. Discussion Papers.
    20. Jenny C. Aker, 2010. "Information from Markets Near and Far: Mobile Phones and Agricultural Markets in Niger," American Economic Journal: Applied Economics, American Economic Association, vol. 2(3), pages 46-59, July.
    21. Oliver D. Hart, 1983. "Optimal Labour Contracts under Asymmetric Information: An Introduction," Review of Economic Studies, Oxford University Press, vol. 50(1), pages 3-35.
    22. Robert Jensen, 2007. "The Digital Provide: Information (Technology), Market Performance, and Welfare in the South Indian Fisheries Sector," The Quarterly Journal of Economics, Oxford University Press, vol. 122(3), pages 879-924.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Casaburi, Lorenzo & Reed, Tristan, 2017. "Competition in Agricultural Markets: An Experimental Approach," CEPR Discussion Papers 11985, C.E.P.R. Discussion Papers.
    2. Sandip Mitra & Dilip Mookherjee & Maximo Torero & Sujata Visaria, 2013. "Asymmetric Information and Middleman Margins: An Experiment with West Bengal Potato Farmers," Working Papers id:5545, eSocialSciences.
    3. de Janvry, Alain & Sadoulet, Elisabeth, 2020. "Using agriculture for development: Supply- and demand-side approaches," World Development, Elsevier, vol. 133(C).
    4. Abate, Gashaw T. & Bernard, Tanguy, 2017. "Farmers’ quality assessment of their crops and its impact on commercialization behavior: A field experiment in Ethiopia," IFPRI discussion papers 1624, International Food Policy Research Institute (IFPRI).
    5. Eduardo Nakasone & Maximo Torero, 2016. "A text message away: ICTs as a tool to improve food security," Agricultural Economics, International Association of Agricultural Economists, vol. 47(S1), pages 49-59, November.
    6. Dagim G. Belay & Hailemariam Ayalew, 2020. "Nudging farmers in crop choice using price information: Evidence from Ethiopian Commodity Exchange," Agricultural Economics, International Association of Agricultural Economists, vol. 51(5), pages 793-808, September.
    7. Tara Mitchell, 2014. "Is Knowledge Power? Competition and Information in Agricultural Markets," The Institute for International Integration Studies Discussion Paper Series iiisdp456, IIIS.
    8. Eugenia Go, 2020. "Trade implications of transport cost in the Philippines," Economics PhD Theses 0320, Department of Economics, University of Sussex Business School.
    9. Jenny C. Aker & Marcel Fafchamps, 2015. "Mobile Phone Coverage and Producer Markets: Evidence from West Africa," The World Bank Economic Review, World Bank Group, vol. 29(2), pages 262-292.
    10. Wouter Zant, 2019. "Mobile Phones and Mozambique Traders: What is the Size of Reduced Search Costs and Who Benefits?," Tinbergen Institute Discussion Papers 19-047/V, Tinbergen Institute.
    11. Camacho, Adriana & Conover, Emily, 2019. "The impact of receiving SMS price and weather information on small scale farmers in Colombia," World Development, Elsevier, vol. 123(C), pages 1-1.
    12. Aggarwal, Shilpa, 2018. "Do rural roads create pathways out of poverty? Evidence from India," Journal of Development Economics, Elsevier, vol. 133(C), pages 375-395.
    13. Arimoto, Yutaka & Kono, Hisaki & Ralandison, Tsilavo & Sakurai, Takeshi & Takahashi, Kazushi, 2015. "Understanding traders' regional arbitage : the case of rice traders in Antananarivo, Madagascar," IDE Discussion Papers 505, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    14. M. Shahe Emran & Dilip Mookherjee & Forhad Shilpi & M. Helal Uddin, 2021. "Credit Rationing and Pass-Through in Supply Chains: Theory and Evidence from Bangladesh," American Economic Journal: Applied Economics, American Economic Association, vol. 13(3), pages 202-236, July.
    15. repec:ags:mididp:152396 is not listed on IDEAS
    16. Carballo, Jerónimo & Rodriguez Chatruc, Marisol & Salas Santa, Catalina & Volpe Martincus, Christian, 2022. "Online business platforms and international trade," Journal of International Economics, Elsevier, vol. 137(C).
    17. O'Connell, Martin & Smith, Kate, 2020. "Corrective Tax Design and Market Power," CEPR Discussion Papers 14582, C.E.P.R. Discussion Papers.
    18. Wouter Zant, 2012. "How does Market Access affect Smallholder Behavior? The Case of Tobacco Marketing in Malawi," Tinbergen Institute Discussion Papers 12-088/V, Tinbergen Institute, revised 25 Aug 2014.
    19. Wouter Zant, 2018. "Trains, Trade, and Transaction Costs: How Does Domestic Trade by Rail Affect Market Prices of Malawi Agricultural Commodities?," The World Bank Economic Review, World Bank Group, vol. 32(2), pages 334-356.
    20. Wouter Zant, 2017. "Impact of Mobile Phones on Staple Food Markets in Mozambique: Improved Arbitrage or Increased Rent Extraction?," Tinbergen Institute Discussion Papers 17-021/V, Tinbergen Institute, revised 26 Jan 2018.
    21. Anais Maillet, 2015. "Food price volatility and farmers' production decisions under imperfect information," FOODSECURE Technical papers 8, LEI Wageningen UR.

    More about this item

    Keywords

    Middlemen; Pass-through; Price information; Cellphones; Supply chains;
    All these keywords.

    JEL classification:

    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:11548. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://www.cepr.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.