There are a number of different ways to model heterogeneity among middlemen,
e.g. different transport costs, different outside options, and these will
result in similar predictions to those of the model presented here. In this paper,
I decided to model the different types as having different attitudes to fairness,
as this seems to be something that is true in reality and the framed field experiment
gives us an opportunity to investigate its importance. Interviews with
farmers and information providers in India suggest that exploitation by dishonest
middlemen is an important concern for farmers and that information can
be used to protect against this. The idea that the honesty or integrity of the
middleman can be hidden when the farmer is uninformed about prices has been
alluded to by previous authors but until now has not been explicitly addressed.2
The model yields some intuitive predictions. The existence of different types
of middlemen creates a new role for price information stressing selection as well
as incentives. It is easier for the bad middleman to disguise his type if the farmer
is uninformed about the market price. The model predicts that there will be
a non-monotonic relationship between the benefit of information to the farmer
and the cost of switching to a different middleman. If the degree of competition
between middlemen is high (i.e. the switching cost is low) then the farmer does
not need to be informed about the market price in order to get a good offer
from the middleman. As the cost of switching becomes higher, the benefit to
the farmer of being informed also increases. For this region of the switching
cost, information and competition act as substitutes. Once the switching cost is
high enough, however, the bad middleman no longer needs to disguise his type
and once again price information will not help the farmer.