Market Institutions, Transaction Costs, and Social Capital in the Ethiopian Grain Market
This report addresses the overarching question regarding the role of institutions in enhancing market development following market reforms. It uses the New Institutional Economics framework to empirically analyze the role of a specific market institution, that of brokers acting as intermediaries to match traders in the Ethiopian grain market in reducing the transaction costs of search faced by traders. Brokers play a key role in facilitating exchange in a weak marketing environment where limited public market information, the lack of grain standardization, oral contracts, and weak legal enforcement of contracts increase the risk of contract failure. Relying on primary data, it analyzes traders' microeconomic behavior, social capital, the nature and extent of their transaction costs, and the norms and rules governing the relationship between brokers and traders.The study uses an innovative approach to quantify the costs of search and demonstrates that the brokerage institution is economically efficient both for individual traders and for global economic welfare.
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Addis Ababa market Amhara region arbitrage Arsi Arsi zone Assela Author’s calculations Author’s survey average Bahir Bahir Dar Birr brokerage Bure buyers central market clients Coefﬁcient commitment failure conﬂict contacts costs of search deﬁcit areas deﬁcit markets deﬁned Dessie Dire Dawa distant markets distant purchases economic estimation Ethiopian grain market exchange farmers ﬁnd ﬁnding ﬁrms ﬁrst ﬁxed ﬂows Gojjam grain trade Harar institution Institutional Economics Jaji Jayne kers Kombolcha level of search Lirenso long-distance trade maize margins market reform Mekele Negassa opportunity cost optimal search intensity Oromiya percent of traders percentage presence of brokers proﬁts relatively revenue role sacks Sagure sample search behavior search costs search efﬁciency search labor search market sell sellers signiﬁcant signiﬁcantly social capital Source speciﬁc storage Table teff Tigray tion Tobit traders and brokers traders surveyed trading partners transaction costs transport type of market variable wholesalers
Page 67 - Significant at the 10 percent level. ** Significant at the 5 percent level. *** Significant at the 1 percent level.
Page 1 - In fact, the costs of transacting are the key to the performance of economies. There have always been gains from trade, as classical international trade theory has taught, but so too have there been obstacles to realizing these gains. If transport costs were the only obstacle, then we would observe through history an inverse relationship between transport costs, on the one hand, and trade and exchange and the well-being...
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