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Networks and Transaction Costs

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  • Henning, Christian H.C.A.
  • Henningsen, Geraldine
  • Henningsen, Arne

Abstract

Based on the well-known fact that social networks can provide effective mechanisms that help to increase the trust level between two trade partners, we apply a simple game-theoretical framework to derive transaction costs as a high risk of opportunistic behavior in a repeated trade relation determined by the density and size of trading networks. In the empirical part of the paper we apply a two stage procedure to estimate the impact of social network structures on farm’s transaction costs observed for different input and output markets. At a first stage we estimate a multiple input-multiple output stochastic Ray production function to generate relative shadow prices of three inputs and two outputs traded by farms. At a second stage a structural equation system is derived from the first order conditions of farm’s profit maximization to estimate simultaneously the of commodity specific transaction cost functions for all traded farm inputs and outputs. Estimation results based on a sample of 315 Polish farms imply a significant influence of social network structures on farm’s transaction costs. Moreover, estimated transaction costs correspond to a reasonable amount of farm specific shadow prices.

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Bibliographic Info

Paper provided by European Association of Agricultural Economists in its series 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland with number 114549.

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Date of creation: 2011
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Handle: RePEc:ags:eaae11:114549

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Keywords: Resource /Energy Economics and Policy;

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  1. Michi Kandori, 2010. "Social Norms and Community Enforcement," Levine's Working Paper Archive 630, David K. Levine.
  2. Arne Henningsen & Christian Henning, 2009. "Imposing regional monotonicity on translog stochastic production frontiers with a simple three-step procedure," Journal of Productivity Analysis, Springer, vol. 32(3), pages 217-229, December.
  3. Arne Henningsen & Jeff D. Hamann, . "systemfit: A Package for Estimating Systems of Simultaneous Equations in R," Journal of Statistical Software, American Statistical Association, vol. 23(i04).
  4. Henning, Christian H.C.A. & Henningsen, Geraldine & Henningsen, Arne, 2011. "Networks and Transaction Costs," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114549, European Association of Agricultural Economists.
  5. Avinash Dixit, 2003. "Trade Expansion and Contract Enforcement," Journal of Political Economy, University of Chicago Press, vol. 111(6), pages 1293-1317, December.
  6. Buskens, Vincent, 2003. "Trust in triads: effects of exit, control, and learning," Games and Economic Behavior, Elsevier, vol. 42(2), pages 235-252, February.
  7. Greif, Avner, 1994. "Cultural Beliefs and the Organization of Society: A Historical and Theoretical Reflection on Collectivist and Individualist Societies," Journal of Political Economy, University of Chicago Press, vol. 102(5), pages 912-50, October.
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Cited by:
  1. Géraldine Henningsen & Arne Henningsen & Christian H.C.A. Henning, 2013. "Measuring the Influence of Networks on Transaction Costs Using a Non-parametric Regression Technique," IFRO Working Paper 2013/11, University of Copenhagen, Department of Food and Resource Economics.
  2. Christian H.C.A. Henning & Géraldine Henningsen & Arne Henningsen, 2012. "Networks and Transaction Costs," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 94(2), pages 377-385.

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