Information Provision and Farmer Welfare in Developing Economies

Abstract

Problem definition: To alleviate farmer poverty, governments and nongovernmental organizations (NGOs) are developing different mechanisms for disseminating market information to farmers in developing countries. This paper examines whether a wider dissemination of information will always benefit farmers. Academic/practical relevance: The characterization of the farmers’ equilibrium production decisions and the implications of information provision provide practical guidance for governments and NGOs when developing agricultural information services. Methodology: We develop an “asymmetric” two-stage game to analyze a base model in which n ≥ 4 heterogeneous farmers need to determine their production quantities when the underlying market condition is uncertain. Our base model relies on four key modeling assumptions: (1) farmers engage in Cournot (quantity) competition, (2) the social planner cares about farmers’ total income, (3) yields are deterministic, and (4) information service is publicly funded so that information access is free. We further examine alternative market environments by relaxing or changing these modeling assumptions separately. Results: Through the analysis of our base model, we find that providing information to only one farmer is optimal but providing information to all n farmers can be detrimental. In alternative market environments, we obtain the following results. First, when the information service is self-financed, we find that the “exclusivity” result no longer holds when farmers are heterogeneous (even though it holds for the case when farmers are homogeneous). Second, when yield rates are uncertain, we find it is optimal to disseminate to more farmers when the yield rates become more uncertain (in terms of coefficient of variation). Third, when the central planner only cares about creating economic value for those farmers with information access, it is optimal for the social planner to disseminate information to more farmers. Fourth, when farmers engage in Bertrand (price) competition, it is optimal to disseminate information to all n farmers. Managerial implications: By combining different results obtained under different market environments, we conclude that the optimal information provision policy depends on the competition type (Cournot or Bertrand competition), yield uncertainty, source of funding, and the social planner’s ultimate goal.