Information Asymmetry as I saw it

In one of my visits to Dharni in relation to a project there, I witnessed an incident which I thought I should share with you. Before I narrate the incident let me tell you a bit about the place itself. Dharni, along with Chikaldhara block, constitutes the Melghat region of Amravati district in Maharashtra. Melghat came into the public attention in the early part of the 90’s with the reports of acute malnutrition in children and related deaths. Its other, and more positive claim to fame, is that it is also a tiger reserve. The population in the region is largely tribal and most of them live in poverty.

I was staying at an NGO’s guest house whose campus was about 6 to 7 kilometres from block headquarters and consequently is in an isolated area with, what one could call a forest, surrounding the campus. A highway which runs through the forest connects the campus with the block headquarters and there are share auto-rickshaws that ply the highway infrequently. One morning I was taking one of these to the block headquarters. My co-passengers were largely farmers or farm labourers. There was one farmer with a huge sack which contained tuar dal. I had been told earlier that this is one of the major crops in the district. As this was also the day of the weekly mandi in Dharni, obviously the farmer was taking the dal to sell it at the mandi. As we neared the block headquarters (about a kilometre and half away), the driver, a young lad of twenty or thereabouts, stopped by the road side in front of a trader’s shop and asked the trader what the procurement price for tuar dal was. Since the shop was at some distance from the road, the trader asked the driver to come closer. The driver took the auto closer to the shop and stopped under the small shed outside the shop. There was a huge weighing balance hanging from the roof of the shed. The driver repeated his query to the trader and the trader responded that he would need to know the weight and quality of the dal. Accordingly the driver asked the farmer to weigh the sack. It was then that I noticed that the farmer was visibly disturbed by the turn of events and was reluctant to oblige. But by then the co-passengers also began to prod him to do the weighing. Perhaps it was their anxiety with the delay that it was causing them that spurred them to act in that manner. The farmer reluctantly took the sack down and put it on the balance. The trader quickly weighed it and stated a price. The farmer looked puzzled and quite agitated by now. He said something to the auto driver and the driver responded. I could not quite understand what was being said. But I could follow that the farmer was not happy with the goings on and some of his ire was being directed at the driver. But the farmer’s muted protests did not stop the deal from going through. The deal was done and money changed hands. The farmer saw the fruit of his toil taken away from him at a price which he was not sure whether to be contended with or not.

As we continued our journey, I heard the driver tell my co-passengers about the unwarranted suspicion of the farmer about him. Apparently at the trader’s shop the farmer had angrily accused the driver of being in cahoots with the trader to cheat him off his rightful price. The driver defended himself in front of the passengers by saying that he was trying to do the farmer a good turn by enabling him to avoid the hustle and bustle of a mandi. Anyway he would not have gotten a higher price at the mandi. I could hear some of the co-passengers murmuring in agreement with this defence.

The incident set me thinking in many directions. The farmer’s agony at sensing that perhaps he had been cheated out of his rightful earning is heart rending to say the least. The farmer’s sense of powerlessness could arise from his lack of knowledge on what could be the correct price. Knowledge of the correct price would have enabled him to be decisive in staking his claim and not be pushed into a corner by the turn of events. Then again, was it a deliberate act of common cunning on the part of the trader and driver to cheat the farmer out of his rightful price. Or was it the gods conspiring to cheat the farmer with the driver and the trader being mere pawns?

For a moment I went back to the many conversations on markets and economics that I have been part of at IRMA, my alma mater. The issues of market failure, information asymmetry, price discovery and commodity trading were manifesting its unpalatable side in front of my very eyes.