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Supervision And Transaction Costs: Evidence From Rice Farms In Bicol, The Philippines

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  • Evenson, Robert E.
  • Kimhi, Ayal
  • Desilva, Sanjaya

Abstract

Labor markets in all economies are subject to transaction costs associated with recruiting, monitoring and supervising workers. The level of transaction costs affects labor and land contract choices and family labor advantages. 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. A number of studies of contract choice support this contention. The inherent difficulty of measuring transaction costs, however, 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 in addition to information on production activities and household characteristics over a range of institutional conditions. It also provides barangay (village) level variables that help us to quantify institutional conditions. The data show that family workers either work or supervise, but do not do both at the same time. This is consistent with 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 due to two sources: not all farms use hired labor, and not all farms that use hired labor actually supervise. The results indeed 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 increased supervision intensity which enhances efficiency. The results enable us to associate institutional conditions with transaction costs and to draw policy inferences regarding the value of improved institutional conditions.

Suggested Citation

  • Evenson, Robert E. & Kimhi, Ayal & Desilva, Sanjaya, 2000. "Supervision And Transaction Costs: Evidence From Rice Farms In Bicol, The Philippines," 2000 Annual meeting, July 30-August 2, Tampa, FL 21788, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  • Handle: RePEc:ags:aaea00:21788
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    References listed on IDEAS

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    1. Leonardo A. Lanzona & Robert E. Evenson, 1997. "The Effects of Transactions Costs on Labor Market Participation and Earnings: Evidence from Rural Philippine Markets," Working Papers 790, Economic Growth Center, Yale University.
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    Cited by:

    1. Fertő, Imre, 2002. "A mezőgazdasági termelés szerkezetének változásai a fejlett országokban, I. Miért a családi gazdaság a meghatározó üzemforma a fejlett országok mezőgazdaságában?
      [Changes in the structure of agricu
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(7), pages 574-596.
    2. James Roumasset, 2006. "The Economics of Agricultural Development: What Have We Learned? Processes," Working Papers 200604, University of Hawaii at Manoa, Department of Economics.
    3. Jamal, Erizal & Dewi, Yovita Anggita, 2. "Technical Efficiency of Land Tenure Contracts in West Java Province, Indonesia," Asian Journal of Agriculture and Development, Southeast Asian Regional Center for Graduate Study and Research in Agriculture (SEARCA), vol. 6(2).
    4. repec:sag:seajad:v:6:y:2009:i:2:p:21-34 is not listed on IDEAS
    5. Sanjaya DeSilva, 2011. "Access to Markets and Farm Efficiency: A Study of Rice Farms in the Bicol Region, Philippines," Economics Working Paper Archive wp_687, Levy Economics Institute.
    6. Ibrahim Demir, 2016. "The firm size, farm size, and transaction costs: the case of hazelnut farms in Turkey," Agricultural Economics, International Association of Agricultural Economists, vol. 47(1), pages 81-90, January.

    More about this item

    Keywords

    Crop Production/Industries;

    JEL classification:

    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • 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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