Friends or traders? Do social networks explain the use of market mechanisms by farmers in India

A farmer's long-term relationship with a trader can improve access to market information, but removes the farmers' option to sell to other traders in a specific year. Social networks could act either as substitutes to traders, helping disseminate market information and fostering economies of scale, or as complements, where farmers help build relationships between their trader and their peers. Using a household survey from India, we investigate whether and how social networks are associated with a farmer's choice to enter into a long-term relationship with a trader. We find that peers directly affect such choice. Further, we find that network characteristics and the household's position within that network influence the decision to have a long-term relationship. Specifically, the more central position of the household and the smaller number of connections with other households, the higher the likelihood a household has a long-term relationship with at least one trader. We rule out that these effects are driven by proximity.