Is Knowledge Power? Information and Switching Costs in Agricultural Markets

Abstract

Abstract This article investigates an important channel through which access to information about market prices could increase the prices that producers receive from middlemen. I develop a model of trade between a farmer and a middleman, allowing for middlemen to differ in terms of their social preferences, and provide an empirical test of the theory using a framed field experiment carried out in India. The model predicts a non‐monotonic relationship between the benefit of information and the cost of switching to a new middleman. I find that actual middlemen do differ with regard to their social preferences, and that the benefit of information to the farmer varies with the cost of switching. While it is not possible to confirm a non‐monotonic relationship between the benefit of information and the cost of switching based on these data, the results are consistent with the predictions of the model.

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