Working Paper: CEPR ID: DP8615
Authors: Mlanie Lefevre; Joe Tharakan
Abstract: Transport costs play a key role in agricultural markets in developing countries and are one of the causes of poverty amongst farmers that are geographically isolated. Another characteristic of agricultural markets is that they often involve interlinked transactions. However, the existing theoretical literature on interlinked transactions does not take into account the existence of transport costs. This paper develops a model of input-output interlinked contracts between geographically dispersed farmers and a trader, whether this trader is for-pro fit or non-pro fit. We derive implications of imposing either uniform or mill pricing policies, as opposed to spatial price discrimination. Impact on profi t, farmers' income, level of production, social welfare and regional disparities are investigated.
Keywords: rural development; spatial pricing; transportation
JEL Codes: O18; R32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| High transport costs (L91) | poverty among geographically isolated farmers (I32) |
| High transport costs (L91) | lower input use and production levels (E23) |
| Interlinked transactions (L14) | exacerbated income inequality among farmers (Q12) |
| Uniform pricing (D41) | higher net incomes for farmers (Q12) |
| Spatial price discrimination (D49) | lower farmers' income (Q12) |