Information efficiency in a lemons market: Evidence from Bt cotton seed market in Pakistan

Efficient information exchanges between sellers and buyers are essential if prices are to act as a signal for resource allocation in an economy. In the case of seed and planting materials, information on quality traits are often difficult for consumers (farmers) to obtain prior to purchase, resulting in failures in the market for seed-based technologies. While regulations on seed certification, labeling and packaging seek to remedy this problem, such regulations are often difficult to enforce where markets are large and diverse, or where the government’s regulatory infrastructure is limited. The market for genetically modified insect-resistant Bt (bacillus thuringiensis) cotton seed in Pakistan appears to be one of these markets. In this paper, we test for the presence of asymmetric information in the seed market by comparing the quality of seed purchased across a representative sample of cotton farmers in Pakistan’s two main cotton-growing provinces. We also test for the extent to which seed prices reflect the efficacy of the insect-resistance traits—a quality trait that is generally unobservable by the farmer—as measured by ELISA (enzyme-linked immunosorbent assay) readings of the Bt toxin expression levels. Drawing on initial results from these tests, we then explore the various regulatory mechanisms and market instruments that can be used to help farmers to better infer Bt seed quality.