Commodity price volatility: an evolving principal–agent problem

This chapter analyses the changing dynamics within commodity markets and increasing price volatility using a principal–agent framework. Adopting this more micro-perspective helps to shed light on the role of informational
asymmetries within trading relationships and how these may be influenced by contractual arrangements. More fundamentally, this chapter reflects on how the fragmentation of production processes within commodity markets has
influenced the transmission of information. In some cases, this has increased the opportunities for opportunistic behaviour. Within the context of agricultural commodity markets, the chapter reflects on the interactions between four
entities: institutions, governments, markets and individuals. To address some of the challenges that may result from information asymmetries, a number of options to advance compatibility of incentives are identified, including greater
consideration of contractual arrangements, price-risk management instruments and the creation of commodities exchanges within producing countries.