Information asymmetry and rural producers


This chapter spells out the hindrances intrinsic to rural producers in developing nations due to extant information asymmetry and proposes prospective solutions for mitigating the same. The rural communities in developing nations owe their marginalization to a great extent to their information deficit pertaining to multi-faceted socio-economic factors. Lack of adequate information often dis- empowers them from actively participating in market transaction (David, 2012). Information asymmetry of rural producers has witnessed the emergence of several schemes to eradicate the issue at hand and empower rural producers. However, an in-depth description of the schemes reveals how information dissemination alone is not sufficient in uplifting the status of the rural marginalized. It is necessary to inculcate skills and experience among rural target group, by virtue of which they will develop the credentials to process acquired information for benefit.

The chapter is divided into three segments:

  • • The first section of the chapter, after providing a brief account of the way existing works conceptualize informational asymmetry, tries to locate informational asymmetry within different entities in the context of rural economy. Subsequently the section analyses the impact of such asymmetry in contributing and sustaining market inefficiency of rural production.
  • • In the second section the chapter provides a brief idea of the existing schemes undertaken both at the global and local level to mitigate information asymmetry and how such schemes remain inadequate in achieving holistic rural empowerment.
  • • Finally, the chapter concludes by hinting at the urgency to move beyond equipping rural producers with the informational resource and simultaneously inculcating in them evaluative capacities to process the information acquired. It is information literacy coupled with processing abilities that in combination attempt to enhance the knowledge base of the rural target group; a precursory measure to achieving holistic rural empowerment.

The need for information and the effect of information asymmetry

Information about something or someone is a much-prized possession. Hence asymmetrical or unequal distribution of such information is bound to put those in possession of less information in a precarious position (Arrow, 1963). Studying the consequences of information asymmetry in the domain of market is indeed a heavily researched area. Researchers from diverse domains, such as economists and financial experts, have dedicated themselves to chalking out strategies to deal with asymmetrical information. Information asymmetry is thought to arise when buyers and sellers, at the time of the economic transaction, possess differential information. This differential information, disturbing the equilibrium, further influences the trade. Most of the works in mainstream economics read informational asymmetry with the assumption that sellers have greater knowledge about their products, which enables them to sell their produce along terms and conditions beneficial to them. Such power enables the sellers to remain on the advantageous side of opportunism and adverse selection (Auronen, 2003) and manipulate the trade, essentially by hiding important information (Akerlof, 1970). Reading informational asymmetry along such lines is useful in studying large-scale business transactions. However, such an assumption falls short in explaining a plethora of small- scale informal transactions happening in the rural economy, where urban buyers are at a more advantageous position and the rural sellers (the producers) have far less knowledge about the value of their products in both the global and local market contexts in which they operate. Organized in an informal structure, the rural producers, due to multi-faceted hindrances, find it difficult to hold a prominent place in the urban market (Khan & Amir, 2013). This persistent isolation of the rural producers often results in inefficient production, which fails to meet the growing demand for rural produce (Choudhury, 2004). In this context we can also trace the origin of resultant market failure in information asymmetry.

So, following mainstream economic theorization, we would not be correct in articulating this informational gap as placing the sellers or rural producers in a comparatively advantageous position. It is true that the rural producers have more knowledge about their produce than anyone else does in the market. However, their disadvantageous market position and rural orientation prevent them utilizing the additional information they have in pursuit of profitable returns. The resultant production inefficiency and constricted freedom of rural producers hint at how information is not just an economic resource but a social necessity as well (Arrow, 1963). Thus, possessing relevant information is not just required from an economic standpoint but is also mandatory for the growth of a self-sustaining rural economy. It is because of this differential nature of informational asymmetry at play in rural economy that the sector demands exclusive attention, which will enable us to come up with innovative and unique strategies pertaining to the mitigation of such asymmetrical information.

Information asymmetry of rural producers in developing nations

This section focuses on demystifying the information asymmetry faced by rural producers. By discussing the agents with whom the rural community experiences informational asymmetry, the section focuses on analysing the impact of such asymmetrical information aggravating rural market inefficiency.

The word “asymmetry”, by definition, resonates the spirit of bilateral disequilibrium. In the asymmetrical relation prevalent in rural economy, if we consider the rural producers to be at one end of the spectrum, then the other end is necessarily occupied by another entity or organization. We will chalk out the nature and intricacy of asymmetrical relation rural producers experience with different entities, who are integral to the process of rural production and consumption.

Information asymmetry between producers themselves

Rural producers, primarily residing in rural pockets across the globe, are a scattered community. Their physical distance from each other, as well as from urban markets, has considerably hampered their information pool. Lack of information about fellow producers impedes community development and the formation of an integrated community of rural producers. Since these rural producers are already isolated, a sense of belonging to a community composed of the likes is crucial in sustaining the motivation of these already marginalized producers. For example, we are all aware of the importance handicrafts have in the global context. Apart from the share it contributes to the global economy, the handicrafts sector also has a major role to play in sustaining indigenous artistic heritage (Bhat Sc Yadav, 2016). An integrated artisan community is thus required from the standpoint of sustaining the global handicrafts sector, which will enable each artisan to benefit from collective support and guidance.

An enhanced inter-communitarian communication paves the path for prominent economic benefits. Exchange of information pertaining to important aspects of production — such as designing, pricing, availability of raw materials, logistics of production and other related issues between rural producers — ensures a more optimal and ethical production. A rural Indian producer residing in Kandi, a village located in the Murshidabad district of West Bengal, narrated the problems of asymmetric informational relationship within a community and how it affects production. In a qualitative interview conducted by our research group at Kandi in October, 2017, she said, “We do not know what others in our locality are producing, from where they are procuring raw materials or getting easy finance, what are the marketing channels they are using, and so on. That means we cannot learn from others, or discuss with them aspects which are common to our production process.” The experiential narration of the rural Indian producer highlighted the dissatisfaction derivative of an obstructed peer-to-peer learning scope resultant of weak intra-communitarian communication. The asymmetric informational relationship among rural producers could have been handled to some extent through peer-to-peer knowledge exchange. But lack of inter- and inter-communitarian linkage restricts the possibility.

Information asymmetry between producers and their prospective buyers

The distance the rural producers share from their prospective buyers is not just a physical one, but also virtual in nature, which significantly derives its nourishment from rural—urban knowledge divide. The asymmetrical information between these two entities results in an unbridgeable gap between the nature of urban demand and rural product, thereby restricting profitable convergence of rural supply with urban demand. Moreover, lack of information about the producers and the nature of their engagements disallows the wholesale buyers from optimally utilizing the potential of rural producers. Bartels (1968) posited that the facilitation of market development in any industry required the bridging of separations between the producers and the consumers that existed on multiple dimensions. He added that these separations may be of four types: “spatial (physical distances), temporal (time difference between production & consumption), informational (concerned parties having different/unequal knowledge about products and market conditions), and financial (buyers not possessing purchasing power at the time they have willingness or buy)” (Bartels, 1968, p. 6). So one of the major reasons for market separation between rural producer and urban consumer is the information asymmetry that exists between them. Limited use of communication platforms coupled with the spatial separation of rural producers from the customers inhibit the producers from gauging market demand, both in terms of quantity and type of produce. Accordingly, it makes it difficult for the producers to plan their production schedules (Singh et al., 2015). The intermediation by different agents also leaves them with little opportunity to know the feedback about their products and to know about the wants of customers (Chouse, 2012).

The rural Indian producer residing in Kandi traced the reason for her poor sales to the distance she shares with her buyers. In the qualitative interview conducted by our research group in October, 2017, she said, “We are rural producers. Most of the urban buyers are unaware of what we are producing. Hence they simply buy from urban markets ... Since we do not have proper linkage with urban crowd, we, the rural producers, often produce designs, some of which are considered outdated by urban tastes.” This personal narration of a rural producer highlights the practical hindrances rural community faces due to the information asymmetry they experience with urban consumers; lack of information about the rural producers and the nature of their engagements prevents the wholesale buyers optimally utilizing the potential of rural creative force. Ignorance about the exact skill set of the producer, the working conditions in which the producer produces and the exact amount of time the producer has the discretion to invest for the purpose of production disallows the buyers to tap the indigenous pool in its full capacity. All these factors, in alliance, contribute to poor market performance of rural produce, in spite of the same having enormous demand in urban context.

The information asymmetry between rural producers and middlemen

Middlemen are crucial conjunctive elements in rural—urban divide. Most of the rural producers’ market performances are heavily reliant on these intermediaries, who connect the small-scale producers to respective retail units. Apart from market linkage, these middlemen also enjoy immense significance in fiscal matters. They often lend cash with exorbitant interest rates to the rural producers in times of need. Though the relationship between the producers and middlemen essentially thrives on exploitation, we can cite multiple instances where the rural producers continue their reliance on these oppressive entities even after being aware of the exploitative nature of this informal bond. It is with the middlemen that the rural producers have direct contact. The physical, informational and communicational distance rural producers share with each other, urban consumers and government and international agencies makes the situation more acute, as the middlemen essentially thrive by capitalizing on rural producers’ lack of knowledge. Helplessness resulting from ignorance and compulsive trust due to lack of easily accessible transparent platforms on the part of the rural producers have been cited by many as primary reasons fostering the parasitic bond between producers and middlemen (Mitra et al., 2018).

The exploitative nature of the bond is reflected in the personal narration of an Indian tribal rural producer located in the district of Birbhum. The rural producer recorded selling mostly in state- organized fairs, which occur seasonally. In order to have minimal cash-flow throughout the year, she told how she sold her produce to local middlemen, who in turn sold the products to urban retail units. Although the rural producer during the interview expressed awareness regarding the increased price with which the middleman resells her products, she simultaneously expressed her helplessness in the scenario. Lack of information regarding selling or supporting channels compels rural producers like her to stick to existing channels, even after becoming aware of their exploitative nature. The middlemen chalk out their strategic economic moves precisely by capitalizing on rural producers’ ignorance and lack of necessary information.

Concerns over the isolation of rural producers have also given rise to various non-governmental organizations (NGOs) who act as ethical intermediaries between rural producers and urban consumers (Jadhav, 2015). Working closely with local community, the NGOs often have direct contact with rural producers, where the effectivity of the former rests in directly communicating relevant information to the latter. Many circumstances can be cited where the NGOs act as intermediaries in relaying market-related information to rural producers. These efforts, while dedicated to eradicating the extant information gap, often remain insufficient in achieving their desired goal. Cultivating extreme dependence of rural communities on the NGOs, these efforts seldom empower rural communities to develop self-credentials in the process of mitigating their overall information asymmetry.

The information asymmetry between rural producers and government agencies

The importance of the rural producers (both farm and non-farm goods) in terms of revenue-generation and employment creation has meant various national government bodies and international agencies cannot remain indifferent to the needs and challenges faced by the rural producers. Different national-level governing bodies have undertaken multiple initiatives for the betterment of these rural producers, which, in turn, would benefit the rural economy. Such initiatives primarily include: financial support, development and adoption of the more target-oriented legislative framework, capacity-building programmes, market linkages and better provision for physical infrastructure. The government-sponsored initiatives are primarily aimed at remediating the current and acute unemployment problem, transformation in the national economy, poverty alleviation and business growth (David, 2012). But inadequate information and the physical and virtual distance urban-based policy formulators share with the rural target group have disallowed optimal utilization of these welfare schemes. Lack of information about the rural producers has hindered the national governments and international agencies in coming up with strategies best suited for the rural sectors. iVloreover, ignorance about public policies and welfare schemes on the part of the rural producers has further distanced them from the arena of such welfare schemes, which are precisely aimed at achieving rural community wellbeing. If we take India as an example, then we can see that the government has come up with district-level support structures such as District Industries Centres (DIC) and District Rural Development Cells (DRDC) to provide local-level assistance to rural community. However, the majority of the artisans across rural Bengal, with whom our research team interacted, explicitly stated the inefficiency of such public support structures. A Bankura-based terracotta artist in his interview narrated the limited assistance of public bodies, apart from providing a minimal daily allowance of Rs75 to rural producers by virtue of their participation in state fairs. He also stated how local level government help-desks, on top of being inefficient in delivering adequate information to the local community, also resort to partiality. Favouritism practised by public bodies only enables a particular group of relatively privileged rural producers to participate in state exhibiting forums and fairs. The practised discrimination further disallows the public schemes to implement empowering measures for overall rural community.

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