Selected Journal Publications

06.11.2019

How Should Farmers Respond to Agricultural Information?

Farmers’ Information Management in Developing Countries—A Highly Asymmetric Information Structure
Chen-Nan Liao | CHEN, Ying-Ju
Production and Operations Management, vol. 26, No. 6, June 2017, pp. 1207–1220

One of the key aspects to running a business is having access to useful information. In developing countries, farmers often suffer from a lack of information, which can lead to missing out on opportunities to sell their products at a higher price.

By using various information and communication technologies, governments, non-governmental organizations, and social entrepreneurs have been disseminating relevant agricultural information to farmers in order to improve their welfare.

Although this information is provided by various sources to help farmers make better decisions, not all of them have direct access to this information. In many cases, information is received through a social network, in which farmers receive information from their neighbours.

Research by Chen-Nan Liao and Ying-Ju Chen found that farmers are likely to have highly asymmetric information channels, in terms of information being transmitted through a social network.

The researchers posed a number of questions regarding how farmers should respond to different signals (information), and whether asymmetry of an information structure leads to any new phenomena. They also questioned, “if the government has some new information or has budgets to improve signals, what should it do to improve farmers’ total profits, and what should it do to maximise the social welfare?”

To address these questions, they constructed a model that included a general environment with complex information structures. “In our model, farmers can raise different types of crops at the same time, and they need to make production decisions on all of the crops”. With this, the market situation for each crop was uncertain, and depended on fundamental factors, including weather or consumer preference, etc. For each factor, there were various signals of which the farmer could use to infer its realization. With regards to consumer preference, the farmer might refer to surveys from various institutions.

The researchers explain that asymmetric information might make a farmer willing to share their signal with another farmer. The logic behind this is that the farmer could better utilize a signal if the farmer who receives the signal has a negative response to it. They also found that a farmer may react adversely to signals, i.e., the farmer might reduce production quantity when the signal suggests high demand.

Interestingly, they revealed that a farmer might also benefit from unobservable signals, as when a signal is improved, other farmers who can observe the signal might pay more attention to it, and less to other signals. In this instance, the other farmers may utilize those signals better, which increases the potential to earn more profit. Different to conventional wisdom, the study also showed that farmers may suffer from receiving a shared signal.

To increase the total profit of farmers, the researchers explain that the government should only allocate its resources to farmers who receive most signals, of which there is moderate competition with other farmers. Conversely, the government should release all of its resources if its primary aim is to maximise social welfare.

Although the study produced novel results, the researchers explain that, “an interesting extension is to use this work as a workhorse to study farmers’ strategies in different networks, and the government’s corresponding intervention policy. 


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