This paper studies liberalised grain markets in Madagascar and examines how property rights are protected and contracts are enforced among agricultural traders. We find that the incidence of This paper studies liberalised grain markets in Madagascar and examines how property rights are protected and contracts are enforced among agricultural traders. We find that the incidence of theft and breach of contract is low, and that the losses resulting from such instances are small. This, however, does not result from reliance on legal institutions - actual recourse to police and courts are fairly rare, except in cases of theft - but from traders' reluctance to expose themselves to malfeasance. As a result, Malagasy grain trade has high transactions costs, and little or no forward contracting. The dominant contract enforcement mechanism is trust-based relationships. Trust is established primarily through repeated interaction with little role for referral by other traders. Information on bad clients does not circulate widely, hence severely limiting group punishments for non-payment.
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Paper provided by Centre for the Study of African Economies, University of Oxford in its series Working Papers Series with number
99-25.
Length: 39 pages Date of creation: 1999 Date of revision: Handle: RePEc:fth:oxesaf:99-25
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Find related papers by JEL classification: K11 - Law and Economics - - Basic Areas of Law - - - Property Law Q10 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - General Q15 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Land Ownership and Tenure; Land Reform; Land Use; Irrigation O55 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Africa
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