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Networks and Transaction Costs

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  • Christian H.C.A. Henning
  • Géraldine Henningsen
  • Arne Henningsen

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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Suggested Citation

  • 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.
    • Handle: RePEc:oup:ajagec:v:94:y:2012:i:2:p:377-385
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    File URL: http://hdl.handle.net/10.1093/ajae/aar099
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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. Thomas Kopp, 2022. "When switching costs cause market power: Rubber processing in Indonesia," Agricultural Economics, International Association of Agricultural Economists, vol. 53(3), pages 481-495, May.
    3. 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.
    4. Felix Adamu Nandonde, 2019. "Building Commitment in Supplier–Retailer Relationship in Developing Economies: The Case of Tanzania," FIIB Business Review, , vol. 8(1), pages 39-50, March.
    5. Geraldine Henningsen & Arne Henningsen & Christian Henning, 2015. "Transaction costs and social networks in productivity measurement," Empirical Economics, Springer, vol. 48(1), pages 493-515, February.

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