{"title":"Socially Beneficial Rationality: The Value of Strategic Farmers, Social Entrepreneurs and For-Profit Firms in Crop Planting Decisions","authors":"Ming Hu, Yan Liu, Wenbin Wang","doi":"10.2139/ssrn.2847477","DOIUrl":null,"url":null,"abstract":"Price fluctuations in agricultural markets are an obstacle to poverty reduction for small-scale farmers in developing countries. We build a micro-foundation to study how farmers of heterogeneous production costs, under price fluctuations, make crop-planting decisions over time to maximize their incomes. We consider both strategic farmers, who rationally anticipate the near-future prices as a basis for making planting decisions, and naive farmers, who shortsightedly react to recent crop prices. The latter behavior may cause recurring over- or under-production, which leads to price fluctuations. We find it important to cultivate strategic farmers, because their self-interested behavior alone, made possible by sufficient market information, can reduce price volatility and benefit all farmers. Surprisingly, even a tiny number of strategic farmers may be enough to stabilize a market price. In the absence of strategic farmers, a well-designed pre-season procurement contract, offered by a non-profit or for-profit firm to a fraction of contract farmers, can bring benefit to all the farmers as well as to the firm itself and reduce income disparity among farmers. On the other hand, a poorly designed contract may distort the market and drive non-contract farmers out of business.","PeriodicalId":402954,"journal":{"name":"FoodSciRN: Other Agricultural Food Science","volume":null,"pages":null},"PeriodicalIF":0.0000,"publicationDate":"2016-10-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"2","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"FoodSciRN: Other Agricultural Food Science","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.2139/ssrn.2847477","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"","JCRName":"","Score":null,"Total":0}
引用次数: 2
Abstract
Price fluctuations in agricultural markets are an obstacle to poverty reduction for small-scale farmers in developing countries. We build a micro-foundation to study how farmers of heterogeneous production costs, under price fluctuations, make crop-planting decisions over time to maximize their incomes. We consider both strategic farmers, who rationally anticipate the near-future prices as a basis for making planting decisions, and naive farmers, who shortsightedly react to recent crop prices. The latter behavior may cause recurring over- or under-production, which leads to price fluctuations. We find it important to cultivate strategic farmers, because their self-interested behavior alone, made possible by sufficient market information, can reduce price volatility and benefit all farmers. Surprisingly, even a tiny number of strategic farmers may be enough to stabilize a market price. In the absence of strategic farmers, a well-designed pre-season procurement contract, offered by a non-profit or for-profit firm to a fraction of contract farmers, can bring benefit to all the farmers as well as to the firm itself and reduce income disparity among farmers. On the other hand, a poorly designed contract may distort the market and drive non-contract farmers out of business.