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Market institutions, transaction costs, and social capital in the Ethiopian grain market:

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  • Gabre-Madhin, Eleni Z.
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    Abstract

    Using a New Institutional Economics framework, this research report addresses a fundamental aspect of markets: how do buyers and sellers find each other and coordinate the transfer of goods? The report quantifies the transaction costs related to search faced by traders in Ethiopia and analyzes the role of brokers in minimizing these transaction costs. The transaction costs of market search are significant in the Ethiopian grain market. Estimated as the opportunity cost of labor time spent searching for a trading partner and the opportunity cost of holding capital fixed during that search, these costs represent one-fifth of all marketing costs. This research report demonstrates that traders minimize their transaction costs of search by using brokers, who enable them to exchange with unknown partners. The report also shows that at the level of the grain economy as a whole, brokers significantly increase the total economic welfare by enabling a more efficient allocation of search effort by traders. Thus, traders with relatively higher search efficiency and lower search costs choose to search on their own, while traders with lower search efficiency and higher search costs choose to use a broker.

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    File URL: http://www.ifpri.org/sites/default/files/publications/rr124.pdf
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    Bibliographic Info

    Paper provided by International Food Policy Research Institute (IFPRI) in its series Research reports with number 124.

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    Date of creation: 2001
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    Handle: RePEc:fpr:resrep:124

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    Keywords: Grain trade Ethiopia.; Institutional economics.; Grain Ethiopia Marketing.;

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    1. Steven Tadelis, 1999. "What's in a Name? Reputation as a Tradeable Asset," American Economic Review, American Economic Association, vol. 89(3), pages 548-563, June.
    2. Narayan, Deepa & Pritchett, Lant, 1999. "Cents and Sociability: Household Income and Social Capital in Rural Tanzania," Economic Development and Cultural Change, University of Chicago Press, vol. 47(4), pages 871-97, July.
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    4. Zeller, Manfred & Ahmed, Akhter U. & Babu, Suresh Chandra & Broca, Sumiter S. & Diagne, Aliou & Sharma, Manohar, 1996. "Rural finance policies for food security of the poor," FCND discussion papers 11, International Food Policy Research Institute (IFPRI).
    5. North, Douglass C., 1989. "Institutions and economic growth: An historical introduction," World Development, Elsevier, vol. 17(9), pages 1319-1332, September.
    6. Negassa, Asfaw & Jayne, Thomas S., 1997. "The Response of Ethiopian Grain Markets to Liberalization," Food Security Collaborative Working Papers 55595, Michigan State University, Department of Agricultural, Food, and Resource Economics.
    7. George J. Stigler, 1961. "The Economics of Information," Journal of Political Economy, University of Chicago Press, vol. 69, pages 213.
    8. Yavas, Abdullah, 1992. "Marketmakers versus matchmakers," Journal of Financial Intermediation, Elsevier, vol. 2(1), pages 33-58, March.
    9. Sattinger, Michael, 1995. "Search and the Efficient Assignment of Workers to Jobs," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(2), pages 283-302, May.
    10. Norton, Seth W, 1992. "Transaction Costs, Telecommunications, and the Microeconomics of Macroeconomic Growth," Economic Development and Cultural Change, University of Chicago Press, vol. 41(1), pages 175-96, October.
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    Cited by:
    1. Quattri, Maria & Ozanne, Adam & Beyene, Seneshaw Tamru, 2012. "The brokerage institution and the development of agricultural markets: New evidence from Ethiopia," ESSP working papers 36, International Food Policy Research Institute (IFPRI).
    2. Shiferaw, Bekele & Obare, Gideon & Muricho, Geoffrey, 2006. "Rural institutions and producer organizations in imperfect markets: experiences from producer marketing groups in semi-arid eastern Kenya," CAPRi working papers 60, International Food Policy Research Institute (IFPRI).
    3. Gebremedhin, Berhanu & Jaleta, Moti, 2010. "Commercialization of Smallholders: Is Market Participation Enough?," 2010 AAAE Third Conference/AEASA 48th Conference, September 19-23, 2010, Cape Town, South Africa 96159, African Association of Agricultural Economists (AAAE) & Agricultural Economics Association of South Africa (AEASA).
    4. Schmidt, Emily & Chinowsky, Paul & Robinson, Sherman & Strzepek, Kenneth M., 2014. "Determinants and impact of sustainable land and watershed management investments: A systems evaluation in the Blue Nile Basin, Ethiopia:," ESSP working papers 62, International Food Policy Research Institute (IFPRI).
    5. Diao, Xinshen & Pratt, Alejandro Nin & Ghautam, Madhur & Keough, James & Chamberlin, Jordan & You, Liangszi & Puetz, Detlev & Resnick, Danielle & Yu, Bingxin, 2005. "Growth options and poverty reduction in Ethiopia," DSGD discussion papers 20, International Food Policy Research Institute (IFPRI).
    6. Kornher, Lukas & Kalkuhl, Matthias, 2013. "Food price volatility in developing countries and its determinants," 53rd Annual Conference, Berlin, Germany, September 25-27, 2013 156132, German Association of Agricultural Economists (GEWISOLA).
    7. Mina Baliamoune-Lutz & George Mavrotas, 2009. "Aid Effectiveness: Looking at the Aid-Social Capital-Growth Nexus," Review of Development Economics, Wiley Blackwell, vol. 13(s1), pages 510-525, 08.
    8. Woldu, Thomas & Abebe, Girum & Lamoot, Indra & Minten, Bart, 2013. "Urban food retail in Africa: The case of Addis Ababa, Ethiopia," ESSP working papers 50, International Food Policy Research Institute (IFPRI).
    9. Latynskiy, Evgeny & Berger, Thomas, 2012. "An Agent-Based Network Approach For Understanding, Analyzing And Supporting Rural Producer Organizations In Agriculture," 52nd Annual Conference, Stuttgart, Germany, September 26-28, 2012 137383, German Association of Agricultural Economists (GEWISOLA).
    10. Shiimi, T. & Taljaard, Pieter R. & Jordaan, Henry, 2010. "Transaction Costs and Cattle Farmers' Choice of Marketing Channels in North-Central Namibia," 2010 AAAE Third Conference/AEASA 48th Conference, September 19-23, 2010, Cape Town, South Africa 96641, African Association of Agricultural Economists (AAAE) & Agricultural Economics Association of South Africa (AEASA).
    11. Bumb, Balu L. & Johnson, Michael E. & Fuentes, Porfirio A., 2011. "Policy options for improving regional fertilizer markets in West Africa:," IFPRI discussion papers 1084, International Food Policy Research Institute (IFPRI).
    12. Rashid, Shahidur & Negassa, Asfaw, 2011. "Policies and performance of Ethiopian cereal markets:," ESSP working papers 21, International Food Policy Research Institute (IFPRI).
    13. Byerlee, Derek & Spielman, David J. & Alemu, Dawit & Gautam, Madhur, 2007. "Policies to promote cereal intensification in Ethiopia: A review of evidence and experience," IFPRI discussion papers 707, International Food Policy Research Institute (IFPRI).
    14. Minten, Bart & Tamru, Seneshaw & Engida, Ermias & Kuma, Tadesse, 2013. "Using evidence in unraveling food supply chains in Ethiopia: The supply chain of teff from major production areas to Addis Ababa:," ESSP working papers 54, International Food Policy Research Institute (IFPRI).
    15. Minten, Bart & Tamru, Seneshaw & Engida, Ermias & Kuma, Tadesse, 2013. "Ethiopia’s value chains on the move: The case of teff:," ESSP working papers 52, International Food Policy Research Institute (IFPRI).
    16. Minten, Bart & Stifel, David & Tamru, Seneshaw, 2012. "Structural transformation in Ethiopia: Evidence from cereal markets:," ESSP working papers 39, International Food Policy Research Institute (IFPRI).

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