DP11548 | Asymmetric Information and Middleman Margins: An Experiment with Indian Potato Farmers

Publication Date

09/30/2016

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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.