14.07.2020

The Perils of too much Information: An Agricultural Framework

陈滢儒 | HE, Qiao-Chu | SHEN, Zuo-Jun Max

Agriculture—the science of cultivating soil, growing crops, and raising livestock—is the primary economic sector of many developing economies throughout the world. Within this context, farmer producer organisations (FPOs) aim to combat poverty by reducing inefficiencies in agricultural markets. For example, FPOs work closely with farmers to integrate specific market information, with the ultimate goal of improving their welfare.

Although FPOs have many roles, a study by Qiao-Chu He, Ying-Ju Chen, and Zuo-Jun Shen specifically focused on integrating market information to improve farmer welfare. The researchers explain, “this is largely due to the fact that we have observed the shift from production intervention toward information intervention, in addressing the agricultural inefficiencies in developing economies.” More specifically, they noticed that farmers were being encouraged to get connected as information-sharing coalitions, by integrating market information rather than dictating production decisions for members.

The researchers used a stylised Cournot competition model under asymmetric market information to study the formation of producers’ information coalitions. To note, a Cournot model describes an industry structure where companies compete on the amount of output they will produce, which they decide independently and at the same time. Using this framework, the researchers had two key questions: What are the incentives for the producers to form information-sharing coalitions? Does market information provision improve the producers’ welfare?

Additionally, the authors explained, “when information sharing coalitions are formed, does additional market information still create value for the producers? Conversely, when the producers are provided with direct information acquisition channels, (either private or public), will the indirect channel (information coalitions) be useful?”

Their study revealed that only a less informed producer has the incentive to form a coalition with a more informed producer, but importantly, no information-sharing coalition can be sustained in Nash equilibrium between two producers in most cases. Furthermore, they found that social isolation can be a unique equilibrium under conditions where public information provision is low and private information provision is high. “Neither complete isolation nor a complete coalition is sustained in Nash equilibrium, when the public information provision is high”, they added.

The study also showed that when private information provisions are endogenous, a coalition can be formed between two producers when the public information provision is high, while a fair allocation of payoff to a large population is achieved by the dominant group architecture, but not efficient for aggregate payoff. That said, when signal precision is uncertain, a complete coalition is not sustained in equilibrium when the population size is large.

Notably, the model used in their study is not solely restricted to agriculture or developing countries. In fact, the recurring theme is that the peril of too much information can lead to more intense quantity competition and lower payoffs.

According to the researchers, the value of short-term market information towards better selling decisions would be another interesting avenue to explore. Yet, their findings—from a policy perspective—will help the dual roles of NGOs when providing market information and mobilizing farmers to build FPOs in developing economies.

陈滢儒

Professor
Information Systems, Business Statistics & Operations Management