An experimental investigation of the incentives to form agricultural marketing pools

This paper presents theoretical extensions and laboratory tests of Hoffman and Libecap's ( 1994) model of individual firms' 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 formulating the pooling problem as a game of incomplete information in which firms have heterogeneous and private risk attitudes. An experiment is conducted to test the theoretical implications of this model. Statistical analysis of the experimental data supports the model predictions of pooling rates, but also reveals that subjects form systematic probability biases and do not behave as strategically as the model suggests. (C) 1998 Academic Press.