A Game Theoretic Approach to Analyse Cooperation between Rural Households in Northern Nigeria

This paper proposes that smallholder farmers in Sub-Saharan Africa can reduce their poverty levels and increase production by using their resources more efficiently through cooperation. Smallholders can group their heterogeneous resources, and make joint decisions. The joint gains are divided, such that each farmer remains independent.The paper models this type of cooperation using linear programming and cooperative game theory. While linear programming establishes insight into optimal farm plans for farmers in the cooperative, game theory generates fair divisions of the extra gain obtained through cooperation.The paper applies the model to a village in Northern Nigeria. To explore cooperation, it clusters households based on socio-economic parameters. The optimal farm plan of the cooperative contains crops with high market and nutritional value. The paper demonstrates that:

• Gross margin of the cooperative is 12 percent higher than the sum of individual gross margins;
• All farmers gain from cooperation;
• Microcredit provision can be used to stimulate cooperation, benefiting even the least-endowed farmers.