An Experimental Investigation of the Incentives to Form Agricultural Marketing Pools

UCSD Economics Discussion Paper 97-35

Posted: 20 Mar 1998

See all articles by Elizabeth Hoffman

Elizabeth Hoffman

affiliation not provided to SSRN

Jason M. Shachat

National University of Singapore (NUS) - Department of Economics

Gary D. Libecap

University of California, Santa Barbara (UCSB) - Donald Bren School of Environmental Science & Management; University of Arizona - Karl Eller Center; National Bureau of Economic Research (NBER); PERC - Property and Environment Research Center

Date Written: December 1997

Abstract

This paper presents theoretical extensions and laboratory tests of the Hoffman and Libecap (1994) model of individual firm incentives to form agricultural marketing pools. The key incentives are lower variance in output prices and economies in scale in marketing. This paper extends the model by allowing firms to have heterogeneous risk attitudes over uncertain profits via the tools of Bayes-Nash equilibrium. An experimental design is conducted to test the theoretical implications of this model. Statistical analysis of the experimental data using random effects probit models supports the model that incorporates heterogeneous risk attitudes that are private information. Furthermore, the statistical analysis reveals a stylized fact: strategic uncertainty leads to more noise around the Bayes-Nash equilibrium of environments that posses economies of scale for pool participants. This is evidence that economy of scale arguments for pooling may not be as empirically strong as previously believed.

JEL Classification: C92, C23, D82, Q13

Suggested Citation

Hoffman, Elizabeth and Shachat, Jason and Libecap, Gary D., An Experimental Investigation of the Incentives to Form Agricultural Marketing Pools (December 1997). UCSD Economics Discussion Paper 97-35. Available at SSRN: https://ssrn.com/abstract=60731

Elizabeth Hoffman

affiliation not provided to SSRN

Jason Shachat (Contact Author)

National University of Singapore (NUS) - Department of Economics ( email )

1 Arts Link, AS2 #06-02
Singapore 117570, Singapore 119077
Singapore

Gary D. Libecap

University of California, Santa Barbara (UCSB) - Donald Bren School of Environmental Science & Management ( email )

4670 Physical Sciences North
Santa Barbara, CA 93106-5131
United States
805-893-8611 (Phone)

HOME PAGE: http://www.esm.ucsb.edu/people/usernew.asp?user=glibecap

University of Arizona - Karl Eller Center ( email )

McClelland Hall
Tucson, AZ 85721-0108
United States
520-621-4821 (Phone)
520-626-5269 (Fax)

HOME PAGE: http://www.bpa.arizona.edu/~libecap

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

PERC - Property and Environment Research Center

2048 Analysis Drive
Suite A
Bozeman, MT 59718
United States

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