Asymmetric Information and Middleman Margins: An Experiment with West Bengal Potato Farmers (IGC Working Paper)

Abstract

This paper investigates how potato farmers in West Bengal sell their crop to local traders, the determinants of farmgate prices and margins earned by traders. We specifically examine the role of asymmetric information regarding prices in neighboring wholesale markets where local traders resell these potatoes. Farmers in randomly chosen villages were provided information about daily wholesale prices. In one treatment the information was provided on public notice-boards, in the other it was relayed privately to randomly chosen farmers. Net of marketing costs, traders earn margins in the range of 55 to 100% of farmgate prices. Information provision resulted in no change in average margins, but the private information intervention caused farmgate prices and traded quantities to co-move more with wholesale prices. The evidence is inconsistent with long term implicit contracts allowing risk to be shared between farmers and traders. Instead, the results can be explained by a model of ex post bargaining, in which low outside options of farmers prevent informational interventions from having significant impacts.

Citation

Pushkar Maitra; Dilip Mookherjee; Torero, M.; Visaria, S. Asymmetric Information and Middleman Margins: An Experiment with West Bengal Potato Farmers (IGC Working Paper). International Growth Centre (IGC), London, UK (2012) 60 pp.

Asymmetric Information and Middleman Margins: An Experiment with West Bengal Potato Farmers (IGC Working Paper)

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