The Economic Value of Market Information for Farmers in Developing Economies

Abstract

In developing countries, farmers lack information for making informed production, manufacturing/selling decisions to improve their earnings. To alleviate poverty, various non-governmental organizations (NGOs) and for-profit companies have developed different ways to distribute information about market price, crop advisory and farming technique to farmers. We investigate a fundamental question: will information create economic value for farmers? We construct a stylized model in which farmers face an uncertain market price (demand) and must make production decisions before the market price is realized. Each farmer has an imprecise private signal and an imprecise public signal to estimate the actual market price. By examining the equilibrium outcomes associated with a Cournot competition game, we show that private signals do create value by improving farmers' welfare. However, this value deteriorates as the public signal becomes available (or more precise). In contrast, in the presence of private signals, the public signal does not always create value for the farmers. Nevertheless, both private and public signals will reduce price variation. We also consider two separate extensions that involve non-identical private signal precisions and farmers' risk-aversion, and we find that the same results continue to hold. More importantly, we find that the public signal can reduce welfare inequality when farmers have non-identical private signal precisions. Also, risk-aversion can dampen the value created by private or public information.