05.16.2013 - Dilip Mookherjee

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Asymmetric Information and Middleman Margins: An Experiment with Potato Farmers in India

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05.16.2013 - Dilip Mookherjee

  1. 1. Asymmetric Information and Middleman Margins:An Experiment with Potato Farmers in IndiaSandip MitraIndian Statistical Institute, KolkataDilip MookherjeeBoston UniversityMaximo ToreroInternational Food Policy Research InstituteSujata VisariaHong Kong Univ of Science & TechnologyMay 2013S. Mitra, D. Mookherjee, M. Torero, S. VisariaAsymmetric Info & Middleman Margins in Potato Markets
  2. 2. QuestionsHow large are middleman margins relative to pricesreceived by farmers in LDCs?To what extent do benefits of market growth trickle down tofarmers?How are these affected by improvements in externalmarket price information available to farmers owing toadvances in IT?More broadly, what role do middlemen play in agriculturalmarketingS. Mitra, D. Mookherjee, M. Torero, S. VisariaAsymmetric Info & Middleman Margins in Potato Markets
  3. 3. Existing EvidenceConsiderable evidence of large gaps between retail pricesof LDC exports and prices received by original producers(Feenstra (1998), Morisset (1998))Difficult to evaluate how much of these are accounted bytransport and distribution costs of intermediariesKey problem: difficult to obtain data concerning costs andmarkups of intermediariesS. Mitra, D. Mookherjee, M. Torero, S. VisariaAsymmetric Info & Middleman Margins in Potato Markets
  4. 4. Existing Evidence, contd.Micro-level evidence of limited pass-through (less than50%) of commodity export price increases to farmers:Ugandan coffee 2002-03 (Fafchamps-Hill (2008))Mozambique cashews in 1990s (McMillan, Rodrik andWelch (2002))Fafchamps-Hill show rising middleman margins were notaccompanied by rise in transport or storage costsS. Mitra, D. Mookherjee, M. Torero, S. VisariaAsymmetric Info & Middleman Margins in Potato Markets
  5. 5. Broad QuestionsPossible reasons for high margins and limitedpass-through to farmers:(a) trader market power, owing to collusion, limited entry(capital requirements, network/reputational barriers), scaleeconomies in transport, storage etc.(b) risk premium for insurance provided by traders tofarmers(c) asymmetric information between traders and farmersconcerning price movements in wholesale or retail marketswhere traders re-sellS. Mitra, D. Mookherjee, M. Torero, S. VisariaAsymmetric Info & Middleman Margins in Potato Markets
  6. 6. Broad QuestionsPossible reasons for high margins and limitedpass-through to farmers:(a) trader market power, owing to collusion, limited entry(capital requirements, network/reputational barriers), scaleeconomies in transport, storage etc.(b) risk premium for insurance provided by traders tofarmers(c) asymmetric information between traders and farmersconcerning price movements in wholesale or retail marketswhere traders re-sellRelative importance of (a,b,c)? If (c) is important, scope forlow-cost policy interventions using new ITS. Mitra, D. Mookherjee, M. Torero, S. VisariaAsymmetric Info & Middleman Margins in Potato Markets
  7. 7. Recent Evidence Concerning Price Effects ofCellphonesJensen (2007), Aker (2010), Goyal (2010): increased useof IT products reduce price dispersion across locations,raise average returns for farmers (Kerala/Niger/MP)Contrast: Fafchamps-Minten (2012) find no significanttreament effects on prices received by Maharashtrafarmers of offer of free SMS service providingprice/weather informationAll of the above contexts: farmers sell directly in wholesalemarkets rather than at farmgateS. Mitra, D. Mookherjee, M. Torero, S. VisariaAsymmetric Info & Middleman Margins in Potato Markets
  8. 8. Effect on Farmgate prices?Focus on contexts where most sales are at the farmgate:bilateral contracting between farmer and customary trader(Ugandan coffee, Mozambique cashews, West Bengalpotatoes)IT services provide each farmer with informationconcerning prices at which their middleman re-sells thegood in marketsPrimary advantage to farmer: reduce informationaldisadvantage vis-a-vis middlemen (rather than who orwhere to sell)Farmer could negotiate a better farmgate price, or reduceinformational distortions in ex ante bilateral contractS. Mitra, D. Mookherjee, M. Torero, S. VisariaAsymmetric Info & Middleman Margins in Potato Markets
  9. 9. This PaperContext: potato farmers in West BengalCalculate (lower bound to) average margins earned bylocal intermediaries, estimate pass-throughConduct a field experiment providing farmers withinformation about the intermediaries’ resale price inwholesale and retail marketsUse observed impacts on farmgate prices and tradevolumes to test alternative models ofcontracting/bargainingS. Mitra, D. Mookherjee, M. Torero, S. VisariaAsymmetric Info & Middleman Margins in Potato Markets
  10. 10. Preview of Main FindingsLarge middleman margins in WB potato (≥ 50-90% offarmgate prices); low (6-20%) pass-through fromwholesale to farmgate pricesResults of providing price information to farmers: noaverage effects, increased volatilityS. Mitra, D. Mookherjee, M. Torero, S. VisariaAsymmetric Info & Middleman Margins in Potato Markets
  11. 11. Preview of Main FindingsLarge middleman margins in WB potato (≥ 50-90% offarmgate prices); low (6-20%) pass-through fromwholesale to farmgate pricesResults of providing price information to farmers: noaverage effects, increased volatility (consistent with poolingequilibria of bargaining model, inconsistent with ex antecontracting model)Hence neither risk-sharing nor asymmetric information playa significant roleKey cause of high margins: hierarchical marketingarrangements, market power of middlemenS. Mitra, D. Mookherjee, M. Torero, S. VisariaAsymmetric Info & Middleman Margins in Potato Markets
  12. 12. Presentation Outline1. Context: WB Potato Supply Chain, Markets andPrices2. Alternative Theories: ex ante contracting, expost bargaining3. Experiment Details4. Testing Different Theories5. ImplicationsS. Mitra, D. Mookherjee, M. Torero, S. VisariaAsymmetric Info & Middleman Margins in Potato Markets
  13. 13. 1. Context: Potato Supply ChainWe study two main potato growing districts of W Bengal:Hugli, W MedinipurFarmers harvest potatoes once a year (Feb-April), sell halfat harvest time, store the rest and sell later (May-Dec)Sell mostly to local traders (phorias) who resell inneighboring wholesale markets (mandi) to wholesalersWho in turn sell to traders in city markets (Kolkata forHugli, Bhubaneswar for Medinipur) and in neighboringstates (Assam/AP)S. Mitra, D. Mookherjee, M. Torero, S. VisariaAsymmetric Info & Middleman Margins in Potato Markets
  14. 14. Supply ChainCity Markets/Kolkata,BhubneshwarOther StatesWholesaleMarkets / MandisFarmersVillage TradersLocal Markets92% 8%S. Mitra, D. Mookherjee, M. Torero, S. VisariaAsymmetric Info & Middleman Margins in Potato Markets
  15. 15. Supply Chain: DistancesCity Markets/Kolkata,BhubneshwarOther StatesWholesaleMarkets / MandisFarmersVillage TradersLocal Markets80-400 km3 km0 km5 kmS. Mitra, D. Mookherjee, M. Torero, S. VisariaAsymmetric Info & Middleman Margins in Potato Markets
  16. 16. Gross/Net Prices at Various LayersCity Markets/Kolkata,BhubneshwarOther StatesWholesaleMarkets / MandisFarmersVillage TradersWholesale(Local) MarketsRs. 6.38Rs. 4.85Rs. 4.52Rs. 2.24/2.15 Rs. 2.55/2.22S. Mitra, D. Mookherjee, M. Torero, S. VisariaAsymmetric Info & Middleman Margins in Potato Markets
  17. 17. Average MarginsKey Fact: Less than 1% farmers sell to wholesalers inmandi directly, so almost invariably farmers must gothrough a local middleman (phoria)When farmers sell in a local market or the mandi, they sellto some other phoria located therePrices farmers receive are significantly below resale pricesphorias receive at the mandiS. Mitra, D. Mookherjee, M. Torero, S. VisariaAsymmetric Info & Middleman Margins in Potato Markets
  18. 18. Average Margins, contd.In 2008 (year of the experiment), average farmgate (gross)price was Rs 2.24/kg; farmer sold at Rs 2.55 in localmarket/haatWhereas phorias received average price of Rs 4.85 in themandiFor farmers that sell directly to a local market, we knowtheir selling costs (transport, handling, storage), whichprovides an upper bound estimate of these costs incurredby tradersS. Mitra, D. Mookherjee, M. Torero, S. VisariaAsymmetric Info & Middleman Margins in Potato Markets
  19. 19. Average Margins, contd.Per Kg: transport costs Rs 0.24, handling & other costs Rs0.35, storage costs (only for potatoes sold after June) Rs0.89Using these as upper bound for corresponding costsincurred by traders, obtain a lower bound for net phoriamargin of Rs 2.02/1.13 for harvest/post-harvest salesEquals 42/23% of wholesale price, and 90/50% offarmgate prices for harvest/post-harvest salesS. Mitra, D. Mookherjee, M. Torero, S. VisariaAsymmetric Info & Middleman Margins in Potato Markets
  20. 20. Hierarchical Marketing SystemWhat prevents farmers from selling directly to awholesaler?Wholesaler does not want to negotiate with small farmers:‘not worth my time’Wholesaler transacts with 7-8 phorias per village, who are‘aggregators’ in a classical hierarchical manner (a la CalvoWellisz):deliver ‘reliable’ supply: stable quantity, good quality (80%phorias inspect potatoes supplied by farmers)can accept delayed payment from wholesalermaintain ‘good relations’ with farmers (risk-sharing role?)S. Mitra, D. Mookherjee, M. Torero, S. VisariaAsymmetric Info & Middleman Margins in Potato Markets
  21. 21. Phoria Market ConcentrationNot particularly concentrated: number of phorias in avillage ranges from 2–20, with mode 6 and mean 9.5,number of farmers selling is 150-200Median village market share of a phoria is 5%58% (resp. 28%) selling to same phoria for more than 2(resp. 5) years; no exclusive dealing or contractualcommitmentsSome interlinkage: one out of three farmers borrow and/orpurchase from same phoriaNo difference in price between old and new suppliers (butsome difference in non-price services)S. Mitra, D. Mookherjee, M. Torero, S. VisariaAsymmetric Info & Middleman Margins in Potato Markets
  22. 22. Resale Price InformationFarmers say they would like to know price at which phoriaresells the crop at the mandiLatter decided by private negotiation between phoria andwholesaler: they don’t like to publicize these pricesFarmers access to phones does not help: ‘we don’t knowwho to call’We paid ‘insider’ market vendors at the mandi to provideus with this information daily74% farmers say phoria is their primary source ofinformation about the resale priceS. Mitra, D. Mookherjee, M. Torero, S. VisariaAsymmetric Info & Middleman Margins in Potato Markets
  23. 23. Price ShocksPredicting prices on the basis of past price information forfarmers is difficult owing to huge fluctuations over time:both across and within yearsAnnual average mandi (resale) price: Rs 7.60 in 2007,4.85 in 2008, 10.72 in 2011, 12.37 in 2012High co-movement with city prices: within-yearpass-through of weekly city price to mandi price exceeds65%Compared with insignificant (6%) pass through to farmgateprices in 2008 (making it even harder to predict mandiprices on the basis of farmgate prices)S. Mitra, D. Mookherjee, M. Torero, S. VisariaAsymmetric Info & Middleman Margins in Potato Markets
  24. 24. Wholesale Potato Prices for Different Years, Agmarkdata, deflated by WB food price index051015Modalpriceperkg2005w26 2006w26 2007w26 2008w26 2009w26 2010w26 2011w26WeekMandi prices adjusted for inflation in food article prices in West Bengal.2005−2011Mandi prices for jyoti potatoes, Agmark dataS. Mitra, D. Mookherjee, M. Torero, S. VisariaAsymmetric Info & Middleman Margins in Potato Markets
  25. 25. Analysis of Variance of Mandi PricesTable 3: Analysis of Variance of Mandi PricesSource MSE FYear 6382.05 2980.75***Period 1756.82 820.53***Year x Period 731.69 341.74***Mandi 165.92 77.49***Mandi x Year 54.61 25.50***ObservationsR-squared27170.87Notes: Based on weekly averages of mandiprices for the months June-November in2007, January - November in 2008 and2011, and January-April in 2012. Periodsrefer to three "seasons" when potato salesoccur: harvest (weeks 1-12), post-harvestearly (weeks 13-26) and post-harvest late(weeks 27-52). A mandi is defined as avariety-year combination.S. Mitra, D. Mookherjee, M. Torero, S. VisariaAsymmetric Info & Middleman Margins in Potato Markets
  26. 26. Intra-year Pass-through of City PricesTable 2: Within-year Pass-through of Weekly CityPrices to Farmgate and Mandi PricesFarmgate Mandi Mandiprice price price2008 2008 2011City price 0.06 0.67*** 0.74***(1.07) (16.85) (13.82)Constant 2.11*** 0.65 -0.72(4.66) (1.38) (-1.54)R-squared 0.50 0.91 0.95Observations 689 949 1,031Notes: Observations are market-variety-weekcombinations. City is Kolkata for Hugli andBhubaneswar for Medinipur. Week and mandidummies are included. t-statistics in parentheses.*** p<0.01, ** p<0.05, * p<0.1S. Mitra, D. Mookherjee, M. Torero, S. VisariaAsymmetric Info & Middleman Margins in Potato Markets
  27. 27. Explaining Across-Year Variations in Mandi PricesTable  1:  Explaining  Varia1ons  in  Mandi  PricesPooling  data  across  2007,  2008,  2011,  2012(1) (2)Local area yield (tonnes/acre) -0.37 -0.42***(-1.44) (-7.11)Distance (00 km) -0.21(-0.86)% households with landline 1.31(0.25)% villages with pucca road 1.14(1.00)% villages with factory/mill -1.50(-1.33)adult male wage rate 0.01(0.18)2008 -1.81** -1.13***(-2.11) (-5.79)2011 4.52*** 5.68***(4.10) (22.53)2012 5.73*** 8.98***(6.59) (37.99)Constant 10.62*** 0.81(3.69) (1.31)R-squared 0.78 0.81Observations 86 2,717Notes: Column 1 observations are mandi-year;Column 2 observations are mandi-week;Mandi denotes market-variety combination;Distance measures distance to nearest city;t-statistics in parenthesesS. Mitra, D. Mookherjee, M. Torero, S. VisariaAsymmetric Info & Middleman Margins in Potato Markets
  28. 28. Ranking of Mandis by Price: 2008 versus other years051015200 5 10 15 20Mandi’s rank before 2008after 2008 2008Mandis’ relative price rankTable: Price RankingsS. Mitra, D. Mookherjee, M. Torero, S. VisariaAsymmetric Info & Middleman Margins in Potato Markets
  29. 29. Summary: Farmers’ Price InformationFarmers have no access to direct information regardingmandi prices at which phoria will be able to re-sell potatoesPredicting this on the basis of past price information offarmers is difficult (esp in 2008) because:farmgate prices co-move little with mandi or city priceshuge year-to-year fluctuations in mandi prices, of whichsmall part explained by local potato yields2008 intra-year and across-mandi price patterns were sodifferent from other yearsS. Mitra, D. Mookherjee, M. Torero, S. VisariaAsymmetric Info & Middleman Margins in Potato Markets
  30. 30. 2.Theoretical PredictionsWhen farmers sell to middlemen rather than to marketsdirectly, effects of information provision depend crucially onwhether trade is governed by ex ante contracts or ex postbargainingS. Mitra, D. Mookherjee, M. Torero, S. VisariaAsymmetric Info & Middleman Margins in Potato Markets
  31. 31. Theoretical Predictions: Implications of Ex AnteContractingWith ex ante contracts (necessary for risk-sharing),asymmetric information results in screening distortionsTraders tempted to claim resale price is low in order to paylow farmgate price; counteracted by lowering tradevolumes below efficient levelProviding information to farmers should reduce thesedistortions: hence information provision should raiseaverage and reduce volatility of trade volumesS. Mitra, D. Mookherjee, M. Torero, S. VisariaAsymmetric Info & Middleman Margins in Potato Markets
  32. 32. Theoretical Predictions: Implications of Ex AnteContractingWith ex ante contracts (necessary for risk-sharing),asymmetric information results in screening distortionsTraders tempted to claim resale price is low in order to paylow farmgate price; counteracted by lowering tradevolumes below efficient levelProviding information to farmers should reduce thesedistortions: hence information provision should raiseaverage and reduce volatility of trade volumes(assuming competition among middlemen)If traders have monopoly power, information provision willhave no effectS. Mitra, D. Mookherjee, M. Torero, S. VisariaAsymmetric Info & Middleman Margins in Potato Markets
  33. 33. EAC Prediction!" !" !" !"#" $"#%!&"$%!&"$%!&"#%!&"Figure: Bertrand competition among traders, risk neutralityS. Mitra, D. Mookherjee, M. Torero, S. VisariaAsymmetric Info & Middleman Margins in Potato Markets
  34. 34. EAC Prediction!" !" !" !"#" $"#%!&"$%!&"$%!&"#%!&"Figure: Bertrand competition among traders, risk aversionS. Mitra, D. Mookherjee, M. Torero, S. VisariaAsymmetric Info & Middleman Margins in Potato Markets
  35. 35. Testable Predictions of EACRobust prediction of EAC: reducing asymmetricinformation should increase volume tradedInformation treatment should expand average quantitytradedExtent of increase typically larger, lower the mandi priceExpect heterogenous treatment effect: quantity expansionshould be larger, lower the realized mandi priceS. Mitra, D. Mookherjee, M. Torero, S. VisariaAsymmetric Info & Middleman Margins in Potato Markets
  36. 36. Alternative Theory: Ex Post BargainingField interviews confirm absence of any ex anteagreements: stress the role of ex post bargainingMiddlemen make price offers (after observing v): signalingrather than screeningOutside option: farmer can take his potatoes to the localmarket/mandi and sell to another trader there (who re-sellsto a wholesaler at same v); 11% of farmer transactions(4.5% of annual output) were in local markets in 2008Collusion amongst village traders, and amongst markettraders, but no collusion between village and markettraders: sequential duopolySunk transport cost at the local market: scope for hold-upby market traderS. Mitra, D. Mookherjee, M. Torero, S. VisariaAsymmetric Info & Middleman Margins in Potato Markets
  37. 37. Separating Equilibrium: Graphical Illustrationvp(v)  m(v)  S. Mitra, D. Mookherjee, M. Torero, S. VisariaAsymmetric Info & Middleman Margins in Potato Markets
  38. 38. Partially Pooling Equilibrium: Graphical Illustrationvp(v)  m(v)  v1   v2  r1  r2  S. Mitra, D. Mookherjee, M. Torero, S. VisariaAsymmetric Info & Middleman Margins in Potato Markets
  39. 39. Comparative Statics of Partially Pooling Equilibriumvp(v)  m(v)  v1   v2  r1  r2  S. Mitra, D. Mookherjee, M. Torero, S. VisariaAsymmetric Info & Middleman Margins in Potato Markets
  40. 40. Pooling Equilibria: Testable PredictionsStarting with a pooling equilibrium, improving the farmersinformation lowers p, q for low v and raises p, q for high vAverage treatment effect will be zero, since m(v) isunaffected and price offers made so that farmers areindifferent between selling to VT or MTHigher transport costs: lowers price offers and probabilityof farmer accepting village trader’s offerHigher v raises offer and lowers probability of farmeracceptingS. Mitra, D. Mookherjee, M. Torero, S. VisariaAsymmetric Info & Middleman Margins in Potato Markets
  41. 41. 4. Information Provision ExperimentExperiment involving 72 villages and 25 farmers per villagein Hugli and MedinipurTwo information treatments in 24 villages each:Public (noticeboards)Private (‘blocked’ cell phones for 4 farmers/village)24 villages served as controlVillages at least 8 km from each otherS. Mitra, D. Mookherjee, M. Torero, S. VisariaAsymmetric Info & Middleman Margins in Potato Markets
  42. 42. Experiment, contd.Control-treatment villages paired to ensure balance withineach local areaExpect no effect on mandi prices: less than 1% supply tomandi came from treated villagesStarted experiment June-Nov 2007 but many problemswith cell-phones needed to be sorted outSorted out by end-2007, so we use data for one full year:Jan-Nov 2008S. Mitra, D. Mookherjee, M. Torero, S. VisariaAsymmetric Info & Middleman Margins in Potato Markets
  43. 43. Table 4: Descriptive Statistics, by intervention group (baseline survey, 2007)(1) (2) (3)Village-levelDistance to mandi (km) 8.07 8.56 8.93(1.01) (1.65) (0.88)Has a PCO box (2007) 0.46 0.42* 0.67(0.10) (0.10) (0.09)Household-levelOwned land (2008) (acres) 1.19 1.09 1.09(0.05) (0.05) (0.05)Fraction land planted with potatoes (2007) 0.51 0.51* 0.53(0.01) (0.01) (0.02)Has a landline phone (2007) 0.24 0.23 0.25(0.02) (0.02) (0.02)Has a cell phone (2007) 0.34 0.31 0.34(0.02) (0.02) (0.02)ControlPrivate InfoPublic InfoNotes:***, ** and * denote difference from control is significant at 1%, 5%, 10% resp.S. Mitra, D. Mookherjee, M. Torero, S. VisariaAsymmetric Info & Middleman Margins in Potato Markets
  44. 44. Effects of Interventions on Source of Farmer PriceInformationTable 5: Effect of Interventions on Farmers Price InformationProbability oftracking DayssincetrackedFriends/Nbrs Other(1) (2) (3) (5)Private info 0.80 0.71*** 1.12 0.50 1.82(0.47) (2.88) (0.19) (1.05) (0.79)Phone recipient 1.71* 0.86*** 1.43 2.31 20.33***(1.65) (2.78) (0.82) (1.47) (4.42)Public info 8.00*** 0.80** 1.03 0.49 30.19***(3.03) (2.20) (0.04) (1.10) (4.72)Observations 10771 10771Prob > χ20.00 0.00Notes: In the fortnightly trading surveys (March — December 2008) a randomly selected 50%sample (stratified by village) was asked if they kept track of retail or wholesale potato prices,and if they answered yes, were asked to list up to 3 markets (2 varieties per market) wherethey tracked prices, how long ago they last tracked the price, the price when they lasttracked it and the source of their information. Each observation is a household-variety-market0.00Information source(4)9302TraderS. Mitra, D. Mookherjee, M. Torero, S. VisariaAsymmetric Info & Middleman Margins in Potato Markets
  45. 45. 5. Treatment Effects on Quantity and PricesPredicted average effects:contracting model predicts traded volumes should risebargaining model predicts zero average effect on pricesand quantitiesAlso examine heterogeneity of treatment effects w.r.t.realized mandi price:contract model predicts treatment will raise trade volumesmore in low v statesbargaining model predicts trade volumes will fall in low vstates, and rise in high v statesS. Mitra, D. Mookherjee, M. Torero, S. VisariaAsymmetric Info & Middleman Margins in Potato Markets
  46. 46. Table 6: Average Effects of Intervention on Total Quantity Sold and Net Price Received(1) (2) (3) (4)Private info 484.65 16.09 -0.07 0.02(0.88) (0.03) (-0.55) (0.15)Phone 524.55 454.09 0.10 0.08(1.18) (0.99) (1.05) (0.98)Public info 229.40 -275.17 -0.10 -0.05(0.44) (0.54) (-0.82) (0.47)Land 2252.24*** 2218.82*** -0.09*** -0.07***(12.89) (12.42) (-5.03) (4.82)Constant 2844.90*** 3022.93*** 2.21*** 2.37***(5.16) (6.69) (18.28) (26.40)Mandi fixed effects No Yes No YesR-squared 0.35 0.39 0.37 0.44Observations 2318 2318 2318 2318Notes: The unit of observation is a farmer-variety-quality. A mandi isdefined as a market-variety combination. In columns (1) and (3) a varietydummy for chandramukhi potatoes, a dummy for low-quality potatoes and adummy for Medinipur district are included; therefore the constant refers tohigh-quality jyoti potatoes in Hugli district. All columns control for thefarmers landholding. Columns (1) and (3) include controls for variety andquality of potatoes, and a dummy for Medinipur district. Columns (2) and(4) include mandi dummies. t-statistics are in parentheses. Standard errorsare clustered at the village level.Total Quantity Sold (kg)Net Price Received(Rs/kg)S. Mitra, D. Mookherjee, M. Torero, S. VisariaAsymmetric Info & Middleman Margins in Potato Markets
  47. 47. Table 7: Heterogeneous Effects of Intervention on Total Quantity Sold and Net Price Received(1) (2) (3) (4)Private info -3027.18* -3066.96** -0.75** -0.61**-1.67 (2.22) (2.11) (2.03)Private info x Mandi price 782.06* 695.64** 0.15* 0.14**(1.85) (2.15) (1.95) (2.02)Phone 1221.77 1715.92 0.06 0.05(0.94) (1.23) (0.18) (0.18)Phone x Mandi price -159.73 -293.64 0.01 0.00(0.50) (0.87) (0.09) (0.05)Public info -2064.80 -2845.59** -0.21 0.02(1.30) (2.26) (0.62) (0.08)Public info x Mandi price 496.83 581.60** 0.02 -0.01(1.33) (2.04) (0.28) (0.17)Mandi price (annual average) -519.22*** 65.40 0.18** 0.18**(2.93) (0.27) (2.38) (2.60)Land 2249.33*** 2184.05*** -0.09*** -0.07***(12.72) (11.96) (5.05) (5.55)Constant 5197.65*** 2837.50** 1.73*** 1.58***(5.37) (2.63) (5.63) (5.34)Mandi fixed effects No Yes No YesR-squared 0.36 0.39 0.41 0.46Observations 2299 2299 2299 2299Quantity sold (kg) Net price received (Rs/kg)Notes: The unit of observation is a farmer-variety-quality. A mandi is defined as a market-variety combination. All columns include the farmers landholding. In columns (1) and (3) avariety dummy for chandramukhi potatoes, a dummy for low-quality potatoes and a dummyfor Medinipur district are included; therefore the constant refers to high-quality jyoti potatoesin Hugli district. Columns (2) and (4) include mandi dummies. The average mandi price foreach individual farmer-variety is calculated as the average price of potatoes in the relevantmandi, averaged over the weeks in which the farmer made a potato sale. Thus the averageS. Mitra, D. Mookherjee, M. Torero, S. VisariaAsymmetric Info & Middleman Margins in Potato Markets
  48. 48. Predicted Treatment Effects at 10th/90th percentileTable 8: Total Effects of the Intervention on Quantity Sold and Net Price Received, 10th and 90th Percentile(1) (2) (3) (4)Private information, no phone10th percentile -746.16 -1038.01* -0.32* -0.20(1.04) (1.70) (1.98) (1.57)90th percentile1736.71* 1170.48 0.14 0.25(1.80) (1.37) (0.86) (1.46)Private information, with phone10th percentile 9.72 -178.55 -0.25 -0.13(0.01) (0.21) (1.30) (0.77)90th percentile1985.47* 1097.70 0.23 0.33(1.76) (1.04) (1.06) (1.47)Public information10th percentile -615.73 -1149.27* -0.15 -0.01(0.97) (1.97) (0.98) (0.08)90th percentile 961.58 697.16 -0.08 -0.04(1.09) (0.94) (0.45) (0.26)Mandi fixed effects No Yes No YesNotes: Total effects are computed at the 10th percentile and 90th percentile of mandi pricesusing results from the heteregenous effects regressions.Net price received (Rs/kg)Quantity sold (kg)S. Mitra, D. Mookherjee, M. Torero, S. VisariaAsymmetric Info & Middleman Margins in Potato Markets
  49. 49. Predicted Treatment Effects at 10th/90th percentile,Using Deviation from ‘Expected’ PriceQuantity Quantity Net Price Net PricePrivate information, no phone10th percentile -2449.89 *** -2955.29 *** -0.25 -0.09(3.08) (3.26) (1.03) (0.53)90th percentile 2777.22 *** 2123.19 *** 0.06 0.11(3.79) (3.20) (0.41) (0.73)Private information, with phone10th percentile -1808.98 * -2621.14 ** -0.14 0.01(1.94) (2.50) (0.52) (0.05)90th percentile 3542.95 *** 3039.67 ** 0.19 0.20(2.82) (2.60) (1.10) (1.13)Public information10th percentile -1830.98 ** -2465.10 *** -0.14 -0.09(2.39) (2.90) (0.60) (0.58)90th percentile 1679.93 ** 1037.57 -0.06 0.07(2.19) (1.56) (0.39) (0.42)Mandi fixed effects No Yes No YesS. Mitra, D. Mookherjee, M. Torero, S. VisariaAsymmetric Info & Middleman Margins in Potato Markets
  50. 50. Summary of Treatment EffectsAbsence of any significant average treatment effects(analogous to Fafchamps-Minten (2011))Masked significant heterogeneous impactsReject contracting model, results consistent with poolingequilibria of bargaining modelS. Mitra, D. Mookherjee, M. Torero, S. VisariaAsymmetric Info & Middleman Margins in Potato Markets
  51. 51. Additional Predictions of Partial Pooling in Ex PostBargaining Model1. Farmers exposed to information treatments track localmarket prices with less error2. Farmgate (gross) price is lower than gross pricereceived by a farmer in a mandi sale (p(v) < m(v))3. More market sales when v is higher (α(v) decreasing)4. More market sales where transport costs are higherS. Mitra, D. Mookherjee, M. Torero, S. VisariaAsymmetric Info & Middleman Margins in Potato Markets
  52. 52. Testing Additional Prediction no. 1 of Bargaining ModelTable 9: Effect of Intervention on Normalized Error Variancein Tracked Price relative to Actual Local Market PricePublic info Private info Control(1) (2) (3)Standard deviationof normalized error 0.33 0.32 0.40Observations 2957 1335 1802(3)/(1) (3)/(2) (2)/(3)1.541*** 1.418*** 0.920*_______________________________ ___________________________ ______________________is defined as (tracked price - actual market price)/actual market price.Variance-comparison test F-statisticNote: Half the farmers in the sample were asked each fornightif they tracked the prices in local markets, and if so which markets, and what the pricewhen they last checked. The date when they checked was matched to the actualwas average price in that market in that fortnight. The normalized errorS. Mitra, D. Mookherjee, M. Torero, S. VisariaAsymmetric Info & Middleman Margins in Potato Markets
  53. 53. Testing Additional Prediction no. 2 of Bargaining ModelTable 10: Farmers Gross Price Difference between Farmgate and Local-Market SalesOverall Hugli Medinipur(1) (2) (3)Sold to market 0.36*** 0.56*** 0.36*(2.78) (2.99) (1.99)Mandi price 0.23*** 0.47*** 0.19***(5.07) (6.92) (4.65)Constant 1.44*** 0.73*** 1.30***(9.06) (3.11) (5.78)R-squared 0.37 0.48 0.29Observations 3919 2002 1917Notes: The unit of observation is a farmer-quality-variety-weekwhen a transaction occurred. Landholding, a variety dummy forchandramukhi potatoes, a quality dummy for low qualitypotatoes and a district dummy for Medinipur are included;therefore the constant term is the coefficient on high-qualityjyoti potatoes in Hugli. t-statistics are in parentheses. Standarderrors are clustered at the village level.S. Mitra, D. Mookherjee, M. Torero, S. VisariaAsymmetric Info & Middleman Margins in Potato Markets
  54. 54. Testing Additional Predictions no. 3,4 of BargainingModelTable 11: Likelihood of Market Sales Regressed on Mandi PriceOverall Hugli Medinipur West(1) (2) (3)Mandi price 1.61*** 0.85 1.68***(3.55) (0.45) (3.37)Land owned 0.93 0.86 0.96(1.10) (0.76) (0.58)Medinipur dummy 4.72**(2.41)Prob > χ20.00 0.58 0.00Observations 3919 2002 1917Notes: The unit of observation is a farmer-variety-quality combination in a week when a positive quantityis sold. The results show odds-ratios and z-statisticsfor logit regressions. Landholding, a variety dummy forchandramukhi potatoes and a dummy for low-qualitypotatoes are included. Standard errors are clustered atthe village level.S. Mitra, D. Mookherjee, M. Torero, S. VisariaAsymmetric Info & Middleman Margins in Potato Markets
  55. 55. ImplicationsFailure of information treatments to help farmers securehigher prices reflect weaknesses of both formal andinformal institutionsWeakness of formal institutions: no centralized wholesalemarkets permitting farmers to sell directlyWeaknesses of informal trading relationships: no long termcontracts or insurance; ex post bargaining with highlyrestricted competition between tradersPolicy makers need to focus on ways of enhancingcompetition (eg encouraging entry of modern retailers thatcontract directly with farmers)S. Mitra, D. Mookherjee, M. Torero, S. VisariaAsymmetric Info & Middleman Margins in Potato Markets

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