Supervision and Transaction Costs: Evidence from Rice Farms in Bicol, the Philippines
AbstractLabor markets in all economies are subject to transaction costs associated with recruiting, monitoring and supervising workers. Rural labor markets in developing economies, where institutions such as labor and contract law and formal employment assistance mechanisms are not in place, are regarded to be particularly sensitive to transaction cost conditions. The inherent difficult of measuring transaction costs has limited studies on this topic. In this paper, we analyze supervision activities reported in a cross-section survey of rice farmers in the Bicol region of the Philippines. This survey is unique because it provides supervision data at the farm task level. We present a simple optimization model in which supervision intensity increases the productivity of hired workers, which is assumed to be lower than that of family members due to the transaction costs. The model predicts that supervision intensity will increase with transaction costs. We use different institutional conditions to proxy for transaction costs, and estimate the demand for supervision time for four different classes of rice production tasks. The estimation strategy controls for selectivity in both hiring and supervising. The results show a positive effect of transaction costs on supervision intensity. We then extend the analysis to a farm efficiency specification to test the proposition that supervision activities improve farm efficiency. This framework allows us to relate institutional conditions to farm efficiency directly and indirectly through their effect on supervision activities. We find that transaction costs have a negative direct effect on farm efficiency, but this is partially offset by the positive efficiency effects of increased supervision intensity. The results enable us to associate institutional conditions with transaction costs and to draw policy inferences regarding the value of improved institutional conditions.
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Bibliographic InfoPaper provided by Economic Growth Center, Yale University in its series Working Papers with number 814.
Length: 42 pages
Date of creation: Apr 2000
Date of revision:
Transaction Costs; Supervision; Labor Markets; Philippines;
Find related papers by JEL classification:
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
- J43 - Labor and Demographic Economics - - Particular Labor Markets - - - Agricultural Labor Markets
- Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
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