Information Sharing and Oligopoly in Agricultural Markets: The Role of Bargaining Associations

We study incentives for information sharing (about uncertain future demand for final output) among firms in imperfectly competitive markets for farm output. Information sharing generally leads to increases in expected total welfare but may reduce expected firm profits. Even when expected firm profits increase, information sharing does not represent equilibrium behavior because firms face a prisoner?s dilemma in which it is privately rational for each firm to withhold information, given that other firms report truthfully. This equilibrium can be overcome if firms commit to simultaneously reporting their information and if reports are verifiable. We argue that agricultural bargaining associations serve both these roles.agricultural markets, bargaining, imperfect competition, information sharing

A Theory of Advice Based on Information Search Incentives

This paper investigates whether recourse to a consultant always enhances decision making. Advice given by a consultant changes the manager’s belief about his own decision-making ability. This change in belief alters the manager’s incentives to make a decision. Taking into account this effect, we characterize the contracts that the firm must offer to the manager when a consultant with a given expertise is hired. Surprisingly, we find that the benefit curve of the firm may decrease as the consultant expertise increases, even if there is no consulting fee. Moreover, we show that the value of advice depends on the “good fit” between the informativeness of the consultant and the manager’s incentives to reach the right decision.advice; value of information; information search; incentives

Search and Active Learning with Correlated Information: Empirical Evidence from Mid-Atlantic Clam Fishermen

This paper examines search with active learning and correlated information. We first develop a simple model to show how correlation affects the decision to acquire information. A unique data set on fishing site choice by mid-Atlantic clam fishermen is used to test the model predictions. Results find that clam fishermen search new sites when the catch at familiar sites declines, i.e., when the opportunity cost of gathering information is low, but also when catch at familiar sites is on the rise. Search following a catch decline occurs at spatially distant sites whereas search following a catch increase occurs at nearby sites. Correlated learning is crucial for explaining the site choice patterns in our data. These results provide new insights that may extend to a variety of economic search problems where correlated learning is important.

A Financial Contracting Approach to the Role of Supermarkets in Farmers' Credit Access

Replaced with revised version of paper 10/17/08.Financial Contracting, Development, Financial Intermediation, Food Standards, Organization of Production, Supermarket, Agribusiness, Agricultural Finance, O17, O33, O50, Q12, Q13,

The Cooperative Firm as Monitored Credit

We develop a financial-contracting theory of the cooperative fim where production requires three generic tasks: working, managing, and monitoring. Workers provide an intermediate input (or labor directly); managers convert the workers' input into a final output; and directors monitor managers. We model the cooperative firm by letting the workers act also as directors. We show how bundling the labor and monitoring tasks can expand the scope for equilibrium market activity, even when doing so results in a strictly positive deadweight loss. Our theory provides new insight with respect to a substantial theoretical and empirical literature on the "life cycle" of worker-managed firms, and with respect to a complementary body of anecdotal evidence on the causes of worker buyouts and cooperative "degeneration". Our theory is also consistent with differences between the board compensation policies of cooperative firms, where members typically receive little more than travel and per-diem reimbursements, and of investor-owned firms, where members receive substantial pay often based in part on firm financial performance.

Can Racially Unbiased Police Perpetuate Long-Run Discrimination?

We develop a stylized dynamic model of highway policing in which a non-racist police officer exhibits a cognitive bias: relative overconfidence. The officer is given incentives to arrest criminals but faces a per stop cost which increases when the racial mix of her stops differs from that of the population. Every period, she observes the racial composition of jail inmates (generated from arrests made by her peers) and forms estimates about the crime rates of each race. In some settings, her overconfidence leads her to overestimate the crime rate of one race relative to another causing the long-run racial composition of the jail population to deviate from the "fair" one (one where the racial mix in jails is identical to that in the criminal population). We compare this to a situation where officers have detailed stop data on each race, similar to data being currently collected in many US states.

Information Sharing and Oligopoly in Agricultural Markets: The Role of Cooperative Bargaining Associations

We study incentives for information sharing (about uncertain future demand for final output) among agricultural intermediaries in imperfectly competitive markets for farm output. Information sharing always increases expected grower and consumer surplus, but may reduce expected intermediary profits. Even when expected intermediary profits increase with information sharing, firms face a Prisoner's Dilemma where it is privately rational for each firm to withhold information, given that other firms report truthfully. This equilibrium can be avoided if firms' information reports are verifiable, and if firms commit to an ex ante contract that forces ex post information revelation. We argue that agricultural bargaining represents one means to achieve verifiability and to implement such a contract.Agribusiness,

Grader Bias in Cattle Markets? Evidence from Iowa

Participants in U.S. markets for live cattle increasingly rely on federal grading standards to price slaughtered animals. This change is due to the growing prominence of ﾓgridﾔ pricing mechanisms that specify explicit premiums and discounts contingent on an animal's graded quality class. Although there have been recent changes in the way cattle are priced, the technology for sorting animals into quality classes has changed very little: human graders visually inspect each slaughtered carcass and call a ﾓqualityﾔ and ﾓyieldﾔgrade in a matter of seconds as the carcass passes on a moving trolley. There is anecdotal evidence of systematic bias in these called grades across time and regions within U.S. markets, and this paper empirically examines whether such claim is supported in a sample of loads delivered to three different Iowa packing plants during the years 2000-02. Keywords: cattle markets, grader bias, quality measurement.

COOPERATIVE FORMATION AND FINANCIAL CONTRACTING IN AGRICULTURAL MARKETS

We use historical variation in the market share of agricultural cooperatives to examine the nature of the cooperative firm. Our data include the share of sectoral output accounted for by cooperative firms across 15 commodity sectors during the period 1930-2002. We test a simple financial contracting model where the cooperative firm is viewed as a particular implementation of "monitored credit" (or "informed intermediation"). Controlling for sectoral and year effects, we find support for the main prediction of our model with a positive and statistically significant relationship between cooperative market share and real annual lending rates.Agribusiness,