School of Public Policy and Governance Tata Institute of Social Science, Hyderabad WORKING PAPER SERIES NO. 1, DECEMBER 2015
Regulation of Information in Agriculture Markets: A qualitative study Sunny Roy
 
School of Public Policy and Governance Tata Institute of Social Sciences, Hyderabad Roda Mistry College of Social Work and Research Centre, Opposite Biodiversity Park, Gachibowli, Hyderabad, Telangana - 500008 Email : sppg-si@tiss.edu Website : http://goo.gl/mQGBpF
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About Student Working Paper Series The Student Working Paper Series, is an attempt by the School of Public Policy and Governance, at Tata Institute of Social Sciences, Hyderabad to assimilate papers being worked upon the topics that will help enrich the public discourses by improving upon the clarity, accuracy and sophistication of discussions on the nation's Public Policy. About School of Public Policy and Governance The School of Public Policy and Governance (SPPG) is a novel research based teaching and training space designed to equip young professionals to contribute to the policy area research. SPPG provides opportunities to its students to think beyond conventional models of growth and development, and encourages them to generate ideas for developing institutional frameworks for accountable governance and the establishment of a socially equitable society. Its programs and activities are designed to create an environment for the well-trained scholars to access and collect information about contemporary policies and activities surrounding them so that they can produce timely research and undertake analysis on key topics of Public Policy. SPPG TISS - HYDERABAD
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Regulation of Information in Agriculture Markets: A qualitative study - Sunny Roy
Abstract Information is regarded by many as an important and most basic component of daily life. Information in many forms permeates all aspects of human life and behaviour and in markets, it is an important factor that determines peoples’ actions. However, the way information is viewed varies across different schools of thought. Neoclassical economics simply assumes availability of full and free information, while new institutional economics stresses on the role of institutions in access to information. Prices were thought to be the only necessary information in markets, but research on the field has well-established other views on information. However, the constituents and role of information in agriculture markets is poorly understood, and is particularly interesting because agriculture market yards are a meeting point of formality and informality in markets. A field study conducted on onion trading in Kurnool agriculture market yard to understand the constituents of information and the determinants of regulation has revealed that the expanse of information is vast than understood by economic theories. External demand and credit information are two major determinants of prices in a market yard and collusion among market players significantly affects information availability and hence affects prices. Social cohesion among traders and economic power are the major determinants of regulatory power.
Keywords: information, agriculture markets, neoclassical economics, new institutional economics, price mechanism, credit, regulation
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Introduction Information is regarded by most people as an important and most basic component of daily life. Information in many forms permeates all aspects of human life and behavior. In markets, it is an important factor that determines peoples’ actions. As a commutative rule, markets are also seen as ‘aggregating and conveying information across a population’ (Easley et.al, 2010, p. 691). The role of information in decision making is most widely discussed these days that a new branch of markets have emerged, called the ‘Information Market’, which trade information itself as a good (Chen, 2005)1 . The study of information in markets has been popular, especially in the context of the major economic theories that exist today. Several authors have extensively researched on the role of information in determining market outcomes, in sectors such as insurance (Stiglitz, 1976, 1977, 1997), credit (1981, 1990), labour market (Toikka, 1974; Stiglitz, 1975), sharecropping (Stiglitz, 1977) etc. Research on information in relation with market equilibrium and efficiency also exists (Kripke, 1980; Cyert, 1993). However, there has not been any major study in understanding the constituents and regulation of information in an agriculture market setting in India. Agriculture markets are an important node in the supply-chain of agriculture produce from the farmers to the consumers. Huge degree of price volatility is known to exist in the agriculture markets, especially in commodities such as onions, cotton, rice etc. and the issue has been a part of political debate. Looking at the issue through the lens of information as an analytical category is expected to draw out some important knowledge on the way information access and regulation works in the marketplace. This paper seeks to explore information as an analytical category in agricultural markets. More specifically, this paper seeks to understand what constitutes information in an agricultural market, their modes of regulation of information and the underlying factors that enable regulation in the marketplace. However, as it is impossible to map complete information in markets and attempting to do so is a herculean task, this paper starts with an assumption that ‘price determination’ is a major task of any marketplace and hence attempts to understand ‘that’ information which substantially affects prices.
1Information
was historically traded for money and other gains.
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A field study for this purpose was conducted in Kurnool agricultural market yard, which is the largest market for onions in Andhra Pradesh. Interviews were conducted with all the important players, viz. farmers, traders, commission agents, hamalis, market committee staff and also a journalist who possesses key information about the dynamics in agricultural markets. Following second section of the paper will deal with theoretical conception of information according to various scholars and economic theories, followed by a section on constituents of information in the agriculture market. The fourth section highlights on the methods of regulation of information, followed by its determinants. The concluding chapter will situate knowledge acquired on information into the existing theoretical framework.
Theoretical Conception of Information To the question of what constitutes information that is desirable in a market, several scholars (Marshall, 1920; Hayek, 1945; Walrus, 1954; Stigler, 1961) have given primacy to prices as the information sought by market players. Conventional economics deal with prices as a cost that the buyer incurs based on the benefit that arises from its possession (Marshall, p. 78). Hence, prices are determined by the demand-supply mechanism and the utility of a particular good, in other words, an equilibrium determination of prices. The same view is put forward by another neoclassical scholar, Leon Walras (De Vorey, 2009 p. 709). This conception of determining prices is widely taught as basics in economics all over the world, of course as an ideal case scenario. F.A. Hayek in his paper published in 1945 acknowledges the importance of knowledge (or information). Transactions involve a huge set of interactions among different players and all information cannot possibly be fed to a central system to determine the value of a good. For example, one does not have to know all the hardships performed to mine diamonds and the demand in store for them, but all that information can reflect in the price people are willing to pay for a diamond, which is its current value. A change in the value of diamonds (price signals) gives out necessary information to the market players and they in turn act according to the price signals. Though not perfect, Hayek suggested that no other system of conveying information has come close to being useful as the price determining mechanism (Hayek, 1945 p.528). Hence, prices are an aggregate of all information in markets. Neoclassical economic theory suggests that all information necessary to carry on market decisions and maintain equilibrium prices is fully and freely available. It is in fact one of the basic assumptions of neoclassical theory that “people act
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independently on the basis of full and relevant information� (E. Roy, 1993). Perfect information is assumed to exist and that information is freely available to in order for the economic transactions among individuals to happen. George Stigler in his paper titled ‘The Economics of Information’ (1961), through a simple example, explained that most often, it is not costless to obtain necessary information in a market (p. 216). It incurs significant costs to identify different buyers and sellers and reach price equilibrium, sometimes greater than the marginal utility of the good itself. Markets are imperfect and not centralized; hence, the prices offered by a seller or prices sought by a seller is not easy to obtain. On the question of what constitutes information, Stigler propounded that identification of buyers and sellers and the prices offered is not the only information, but only a small part of the vast information in markets, say for example, the quality of goods etc. When such information is not available in order to make a rational choice, institutions pitch in to serve the purpose. New Institutional economics goes against the assumption of free availability of information and stresses on the role of institutions in altering its availability. Institutions by definition are the rules of interaction formed by groups or individuals by repetitive interactions (North, 1986; Coase, 1998). The role of such institutions gives rise to a condition where some players have better access and some players have no access to necessary information. This gives rise to information asymmetry, much against the assumptions of neoclassical thought. North suggested that specialization and division of labor are two primary reasons for institutions shaping up information asymmetry (p. 231) and hence, transaction costs are huge. Every market player tries to maximize his utility, seeks to lower transaction costs and hence forms organizations/firms. The basic role of a firm/organization is to seek necessary information at a lower cost. Though new institutional economics does not delve on what constitutes information, there is a general agreement that information not only means prices but a myriad of many others in a complex economic network (quality of a good, information on markets etc.). Coercion, cheating, opportunism etc. arise out of maximizing behavior and hence, third party institutions (regulatory mechanisms and governments) play a role in providing vital information and suppressing opportunistic behavior through legal and other means. Kenneth Arrow (1962) in his paper on uncertainty in resource allocation viewed information as a possible commodity. Optimal allocation of resources requires all the necessary information about
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inputs and outcomes in the process. But, similar to uncertainty in weather conditions and its impact on the agricultural production, uncertainty also prevails in resource allocation. When a research produces an outcome that affects the allocation, the result is an outcome that is commoditized. Not only through research, but through network connections, everyday transactions etc., information can be obtained and can be used for one’s gain. In such a scenario, information can be theorized as such knowledge which can be used for optimal allocation of resources. Through sufficient legal measures, that information can be made to be used by others for a fee, making information a commodity that can be traded between players in the economy. Another strand of knowledge on information is obtained from the literature by Stiglitz, who pioneered the field of economics of information and eventually won the Nobel Prize for the same. Stiglitz sought to understand why standard economic models failed to explain the realities like unemployment, risk in credit markets etc. Unlike Stigler, who only saw obtaining information as a transaction cost (Stiglitz, 2001 p.477); Stiglitz saw it as something that seriously affects the equilibrium. The assumption of perfect information and the lenience with imperfect information in markets were questioned and explained that even small imperfections could affect the equilibrium in every aspect of examination (labor markets and credit systems alike). Even minute gaps in information proved costly and existing models could not account for such cases. For example, existence of unemployment and high wages simultaneously in Kenya goes against standard labor market equilibrium and such a scenario can only be explained by limitations in information (p. 479). However, there is not a single set that determines the whole of information in Stiglitz’s writings. Information varies from sector to sector and purpose. Quality of a particular good/person is an important information in screening and selection (1975, p. 283). While information about potential risks or defaulting by insured is important in insurance markets (2002, p.481), equity markets suffer because information about risks is either unavailable or costly (1993, p.17) and banks ration credit to play safe as information about borrowers is costly to obtain. What causes information asymmetry and the implications of costly, imperfect and asymmetric information on equilibrium is the central question, rather than what constitutes information in Stiglitz’s writings. Asymmetry in information is both natural to certain markets and also created by market players to gain edge over the competitors (2002, p.488). Also, information asymmetry in markets cannot be
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completely overcome, but only mitigated to the extent possible. Stiglitz suggests a number of methods to eliminate information asymmetry, which will not be discussed here. As there is a cost involved in obtaining information, institutions/governments play a role in easing the constraints to access of information.
School of
Scholars
Thought
Constituents of
Salient Features/
Information
Assumptions
Neoclassical
Information is fully F. A. Hayek
Economics
Prices
and freely available in a market
New
Information never is
Institutional Economics
Douglass North, Ronald Coase
Does not talk about the
fully and freely
constituents of
available; institutions
information.
play a crucial role in ensuring availability.
Others
Information Prices and also other
asymmetry prevails
Stiglitz,
inputs such as quality,
in every market and
Joseph Stigler
reputation etc. Case
it has serious
based information.
implications on the behavior of markets
Information is everything
Information can be
that helps in optimum
traded as a
allocation of resources
commodity
Kenneth Arrow
Table-1: Conceptions of Information according to various schools
Real Demand and Credit Information: As already suggested, the information is categorised as that which influences market prices. The reason to do so stems from the fact that prices were considered to be the most important information in a market. The fieldwork has yielded two important strands of information that affects market prices; first, the external demand that in-house traders in a marketplace receive
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from the other regions and second, information on credit. These two aspects play a critical role in determining prices and hence are valid to be called information. While other strands of information have emerged, these two strands have the highest visible impact on prices. (i) Real Demand: It is no new discovery that prices in a market are determined by the equilibrium between demand and supply. However, the ‘real demand’ in our context is different from ‘demand’ in the demand-supply equation in terms of ‘information’ availability. What I consider information in this context is the knowledge of larger markets to farmers from where the demand arises, and I call this the ‘real demand’. Price setting in local agricultural markets occurs between farmers and local traders depending on the demand and supply situation between them. However, theoretically, it is absolutely possible that the traders hide/mask their real demand with a fake demand situation thus controlling the price setting mechanism. This precisely is what happens in the agricultural market in question. Pertaining to the market for onions, only a minor quantity of onions produced caters for the local needs and the surplus is exported to various locations across the country. The largest markets of onions from Kurnool are the eastern states, viz. Odisha, West Bengal and also Bangladesh. In other words, the agriculture market is largely export driven. This might be true for most markets, but the problem arises when information on true demand is crucial in determining market prices. Observations from the study have indicated severe variations the in the price of onions, even though the demand for onions from external markets remains high. For example, the peak price would rise to around Rs.1300 per quintal one day and falls to Rs.600 per quintal in just two days. In a period with no observable disastrous events in the external markets, such a fall in demand is highly unlikely in a short span. The only plausible explanation to this fluctuation in prices can be through control of information on real demand by the traders in order to regulate prices. This is drawn as a conclusion by many informants of the study. Thus, information on external markets is crucial and leaves scope for regulation of such information in the market. As farmers are totally cut-off from the information cycle, lack of information on real demand makes the farmers ‘price receivers’ rather than playing a part in price determination. External demand for onions is only available for the traders and everyday prices of onions are determined by the traders alone. Except when the inflow of onions into the market is low, the prices usually follow what the traders determine. Traders don’t reveal the amount of onions
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required on a particular day to the farmers and also are not obliged to do so at it do not directly fall into the purview of the market committee (regulating authority). But not revealing real demand (information) has implications on the prices of onions on a particular day. All interviewed farmers suggested that traders collude among themselves to obtain prices lower than the market clearing prices. Knowledge of real demand enables them to collude among themselves and portray a false demand situation to the farmers, thus forcing them to agree to a trader decided price. Had the farmers known the true demand present for their onions, the bargaining capacity would fetch them a higher price. Thus, real demand seems to help the traders determine market prices through collusion. The processes of collusion will be discussed in the coming sections. This determination of prices by the traders goes against the normal economic principles of demand and supply. When information in markets is complete, price is determined only by the principles of demand and supply and no other factors should play a role in the prices. If the farmers knew how much demand exists in the market on a particular day, they would decide how much produce to send to the market. Farmers can rapidly respond to changes in demand in either direction by cutting down the supply in case of low demand and by supplying more in case of high demand. However, onion markets are asymmetric in this aspect. Information asymmetry exists not by regulation, but by the nature of market organization itself. Traders act as intermediaries between farmers and the final buyers who determine the true demand and earn a profit for transacting. As farmers do not have direct access to the end users, this asymmetry in information is structural and hence cannot be avoided unless a change occurs in the market organization. Kind of Information
Real Demand
Holders
Local Traders
Gaps in information flow
Structural flaws in market organization Barriers to new entrants due to flaws in the legislation
Effects on the parties
Farmers cannot perceive the real demand for onions on a particular day. Traders hold this information and determine the prices (even in an auction). Farmers receive less than what the produce deserves, which is often far less than the cost of input.
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Regulating Players
Traders Table-2: Information on external demand
(ii) Credit Information: The second strand of information that plays a major role in price determination is the information on credit. Informal credit is the largest component of the total credit market for agriculture and in the current scenario, the largest creditors are the commission agents (otherwise called middlemen). All the farmers interviewed have mentioned that their primary source of credit apart from banks are commission agents, who provide them with credit for rights to trade farmers’ produce in the market in return. Providing credit to the farmers is a way through which the commission agents maintain their market share. This connection might seem not to have any effect on prices, but not quite so. Commission agents have no stake in the market except acting as an intermediary between the farmers and traders. Their role as commission agents is to seek a fair bargain between traders and the farmer they represent during an auction. However, the market dynamics act otherwise to create a scenario where a lack of incentive exists on part of the commission agent to obtain a fair price. The reason for this behavior is as follows. According to the rules of the market committee, the traders are expected to pay off the farmers for their produce on the same day in cash, but this seldom happens. The traders, due to an informal agreement with the middlemen pay them only after a few days, after they receive their payments. The commission agents are therefore obliged to pay the farmers on the same day by deducting the principal and interest of the loan and commission for the sale. This linkage between the middlemen and traders is crucial for our case. The number of operating traders in the market are very few and the commission agents prefer to transact with those traders who they trust due to the nature of monetary transactions with the traders (This is also a reason why new entrants are hard to come into the market, as commission agents prefer to transact with established traders than new ones). As farmers are bound to the agents through credit, no choice is available to the farmers to choose a different agent. The commission agent - trader collusion prioritizes traders’ interests than that of the farmers. As commission agents pay the farmers for their produce, the principal, interest and commission are deducted before the farmer is paid, ensuring that the agents’ profits remain intact. This situation has a direct impact on price determination.
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The commission agents prefer transacting with trusted traders who pay them on time. The best way a commission agent-trader relationship is kept intact is to provide traders with more quantum of sales at a lower price. This acts as a disincentive for commission agents to lower selling prices than the fair price. Many farmers who source credit from commission agents have reported that credit linkage binds them to those credit providing commission agents, thus accepting any price that the commission agents offer the farmers. It is important to note that information on credit availability and access to the same seems to play a major role in regulating the market across the country. As of 2002, Institutional agencies such as nationalized banks, cooperative societies, commercial banks, regional rural banks etc. have catered to 57.1% of rural credit, while non-institutional players like moneylenders, landlords etc. have provided 42.9%. This component was as high as 92.8% in 1951 (Pradhan, N. C., 2013). While formal credit institutions are seen as the most preferred source of credit, it is interesting to note that nearly half of the credit availability is through informal sources. Evidence (Swain, 2002) suggests that formal credit is highly restricted due to credit rationing by formal credit institutions, especially in agriculture. According to the All India Debt and Investment Survey conducted by the National Sample Survey Organization (NSSO) (2006), about 2.6% of the total rural credit is supplied by traders and commission agents. This is particularly interesting in our scenario because traders and commission agents are the primary constituents of agricultural markets and their participation in the credit market enables them to have a control on determining prices in the market. A similar effect of commission agents on agrarian credit markets in Punjab has been documented by Anita Gill (2004) in her paper and provides an empirical analysis on the issue. It was also observed that the commission agents convince farmers to sell their produce without an auction. An agent is usually associated with a particular trader and he makes sure all his farmers produce (located in different parts of the market) is sold out as soon as possible. Out-ofauction prices are less than the auction prices and hence farmers are at a disadvantage. A commission agent doubling both as credit providers and mediators and also the informal financial dealings between agents and traders creates a unique situation of influencing market prices. Imagine a scenario where all the farmers are provided credit from sources that do not have any market linkage. In such a scenario, commission agents would have a limited role to play, only as mediators between farmers and traders. The best possible way to maximize their income would
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be through helping the farmers get a better price and hence increase their commission. As evidence suggests, such a scenario doesn’t exist and hence information on credit plays a major role price determination. Kind of Information
Information on credit availability
Holders
Formal / Informal financial institutions
Receivers
Farmers
Gaps in information flow
Dependence on commission agents / traders for credit
Effects on the parties
Farmers do not receive a fair price Trader – agent collusion to reduce the prices
Regulating Players
Traders, together with commission agents, financial credit providing agencies Table-3: Information on Credit
Regulation of Information: Information affecting price determination have been discussed in the above section, real demand and credit information are seen as major price determinants. The current section focuses on the determinants of regulation of information in the agriculture market setting. Auctions are the allowed method of price setting in the agriculture market in study and the focus will remain on how auction prices are regulated by the market players. Though auctions are traditionally seen as the most preferred and efficient method of price setting, literature suggests that auction prices can be controlled by the players (Bannerji et al, 2004, 2002; Palaskas et al, 1998). This study corroborates existing literature and also draws out important trends on the process of regulation. Observing the auction process in market yard space is an important exercise to understand how auctions are controlled by those who possess information, i.e., on real demand and credit. The two market players who hold this information predominantly are traders (on demand) and commission agents (on credit). Collusion among these two market players results in regulation of information and hence prices. Two kinds of collusions have been observed, (i) between the traders (trader-trader collusion) and (ii) between traders and commission agents (trader-agent) collusion.
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(i) Trader-Trader Collusion: Trader-trader collusion is made possible because of their greater economic influence on the market, despite their smaller numbers. Informal discussions with commission agents and farmers have revealed that these big traders act in collusion with each other to lower the prices in an auction. An observation of the auction process has revealed that the participating traders use a series of signs and gestures to cut the auction price to a convenient level through informal mechanisms2 if they sensed a situation of high auction prices than what they are willing to pay. The produce brought in the auction would be shared among the bidders. This leaves the farmer at a compulsive situation to accept the auction price or take the produce back. Taking back the produce or storing it locally will increase the transaction costs, leading to an unfavorable outcome for the farmers. Furthermore, out-of-auction selling would attract a price smaller than the auction price and hence farmers practically have no say on the price. (ii) Trader-Agent Collusion: Trader-Agent Collusion on the other hand, also plays an important role in determining the prices that a farmer receives. The role of commission agents in a marketplace and the economic relationship between commission agents and traders is already described in the previous section on credit. Most agents have reported that traders take time to clear the bills and therefore, they are obliged to pay the farmers immediately (excluding the arrears). It is thus logical for the commission agents to sell the produce to those traders who are trustworthy and assure the agents of the payment on time. Apart from the above reason, it was observed that a competition among commission agents to clear their part of the produce has resulted in a situation where commission agents prefer to transact with traders without an auction, for a lesser price. During the period of study, it was observed that farmers had to stay for days in the market waiting for their turn to sell their produce and this delay was often used as a reason by the agents to pursue the farmers to sell their produce without an auction.
2Winking
at a competing trader during the auction means that the trader is willing to cut the auction and share the produce among them equally later. Such gestures were observed during the auction, but the frequency was less and only in the case of an extremely good lot. The understanding was most generally before the auction began and when the market committee staff was present.
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Determinants of Regulation: Regulation of information and price determination cannot occur without any social/economic relation between the market players. An investigation into the social and economic composition of the market has revealed some important determinants of collusion. The first determinant is power structure within the market. A hierarchy can be observed in the order of who holds the most information and who holds the least, which helps them determine the market price and processes as discussed above. The traders hold most information and are the highest in the hierarchy, followed by the commission agents, market committee and then the farmers at the end of the table, considering that information that affects prices and processes. A tabular representation is shown below, on the power structure and the components of information held by the market players. Hierarchy Level
Market Player
Information held
Number of components
1
Trader
New Varieties and Farm inputs, External Demand, Price trends
4
2
Commission Agent
Price Trends, Credit information
2
3
Market Committee
Price Trends (faulty)
1
4
Farmer
None
0
Table-5: Table showing the magnitude of information held by market players Traders invariably are the strongest in the hierarchy and hold the highest economic power in the market. They are the sources of money into the local market system and they earn a profit by intermediating trade between farmers and outside traders. In order to maximize his profit, a trader has to buy the produce at a less price as possible and this is where information plays a crucial role in determining the market prices. All the information described above that the trader holds plays its part in ensuring that the trader buys the produce at a low price. Economic power assures that the information that is held earns a profit to the traders. Commission agents, who are assigned a hierarchy below the traders and above the farmers, hold some information in the market, primarily of credit linkage. Availability of credit (which is classified
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as important information) from the commission agents enables them to control who the farmers sell their produce to. But this information does not enable them to control the traders, hence a hierarchical rank below the traders. While the commission agent is supposed to find a bargain that maximizes the farmers’ received price, he works in the opposite direction in reality. It is necessary for the commission agents to have a favorable linkage with the traders (higher hierarchy) in order to seamlessly facilitate the transaction to the farmers, but in reality, they work in favor of the traders owing to the same financial linkage with the traders. Here too, the hierarchy in flow of money is prominent along with the amount of information held, which is paramount. In a hypothetical condition, if the commission agents had as much information of external demand and price trends as the traders did, their bargaining power with the traders would be equal and he would work in favor of the farmers. But since the role of commission agents is limited to act as a mediator but not to buy the produce for himself, there lacks an incentive for the commission agent to gather such information and hence have to act according to the information available to him. This condition shows a relationship between power and information held. Farmers at the end of the hierarchy possess least information and hence are at the bottom of the hierarchy. Lack of information ensures that the farmers are ‘price receivers’ rather than ‘price seekers’. Apart from economic power structure, the second important determinant of regulation is social cohesion. Observations reveal that social cohesion is strong enough among the traders as most big traders belong to one religious group. The numbers of traders not belonging to the group are very few and these traders operate in close cooperation among themselves. Collusion among the traders ensures availability of information of larger markets and demand among themselves. As this information is important in determining the market prices, these traders may ensure that this information is not known to the other traders too. As long as the social cohesion exists in the market, information also will be restricted to a handful of traders, thus controlling information and prices.
Conclusion The above understanding of information is the result of fieldwork on the study of onion markets in Kurnool agriculture market space and it has drawn out important insights on information, its constituents and the role of different factors in enabling regulation of information for gains, thus ensuring unfair market outcomes. What remains to be explored is whether the knowledge on
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information and regulation obtained corroborates or rejects the assumptions of dominant economic theories. In relation to the neoclassical understanding that information that all information can be condensed into a price mechanism, the fieldwork observations speak otherwise. Prices of onions in the market and at the end-users never matched the true price of the commodity. The price that farmers receive is far less than what it would have actually obtained, in the event of a fair market process. Also, the intermediaries within the marketplace increase the prices of a good without any value addition to the product. Thus, information condensed in prices is never an efficient and true estimate of information and hence has to be rejected. Also, the neoclassical assumption that information is freely and fairly available seems to be grossly wrong. In the agricultural markets, information is only differentially accessible, and determinants like social and economic structure play an important role in accessing information and thus, this assumption proves not to be valid. In relation to the neoclassical thought, information is not truly defined, but it stresses on the role of institutions in determining the access to information. This statement is not necessarily true as institutions that have been created to ensure fair market outcomes are seldom useful in doing so. In this scenario, the APMC, which is the regulatory institution, has no effect on the market outcomes, except facilitating a market place. Formal institutions like APMC might play a defining role in markets, provided that the market players are equal in some aspects. Market operations between unequal players dominate the regulatory mechanism. Also, informal institutions like caste, etc. play a role in regulation. The new institutional thought will only be partially apply in this case. In the views of other scholars on information, information accessibility in markets is highly differential, as suggested in the section on theoretical conceptions of information. Necessary information in the markets is controlled by a few players while disseminating information to the other players will be beneficial to all and enable an efficient outcome. Information asymmetry is a major fuel for regulation and is beneficial for those who hold it.
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" Figure-1: Decision diagram related to different fields of thought In a nutshell, while the neoclassical thought of information availability and prices is completely rejected, new institutional thought of the role of institutions is partially supported. Also, the fieldwork observations are in full conformity with the thoughts of other scholars who proposed information asymmetry as a determining role in the markets. Informal institutions such as power structure and social groups play an important role in facilitating this process.
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Stiglitz, J. E. (1975). Incentives, risk, and information: notes towards a theory of hierarchy. The Bell Journal of Economics, 552-579. Stiglitz, J. E. (1977). Monopoly, non-linear pricing and imperfect information: the insurance market. The Review of Economic Studies, 407-430. Stiglitz, J. E., & Weiss, A. (1981). Credit rationing in markets with imperfect information. The American economic review, 393-410. Stiglitz, J. E. (1990). Peer monitoring and credit markets. The world bank economic review, 4(3), 351-366. Stiglitz, J. E. (2002). Information and the Change in the Paradigm in Economics. American Economic Review, 460-501. Swain, R. B. (2002). Credit rationing in rural India. Journal of Economic Development, 27(2), 1-20. Toikka, R. S. (1974). The Economics of Information: Labor Market Aspects.The Swedish Journal of Economics, 62-72. Yiling Chen. (2005). Markets as an Information Aggregation Mechanism for Decision Support (Doctoral Dissertation). Available from http://yiling.seas.harvard.edu/publications/.
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Editorial Board Co-ordinator: Shreya Dixit Editors: Abhay Yadav, Abhishek Acharya, Akheela Ashraf, Ashwin Jangalapalli, Gopal Gajbhiye, Krishna Teja Inapudi, Rajasindhura Aravalli, Rajeev Agur, and Yeshwanth Kumar
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