Direct-selling farming and urban externalities: What impact on product quality and market size?

In this paper, we study how proximity to cities affects the decisions of farmers to enter the direct-sales market in the presence of spatial heterogeneity in agricultural yields. We develop a theoretical model which takes account of the externality of urban pollution and market access costs on direct-selling profits. We find that regions hosting an intermediate-size city are more likely to supply a wider range of direct-selling varieties. Additionally, we highlight that spatial heterogeneity in productivity creates distortions in the competition among farmers, and can have concomitant undesired effects on both the quality and range of available varieties.