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Property rights in a flea market economy

  • Fafchamps, Marcel
  • Minten, Bart

This paper studies liberalized 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 is fairly rare, except in cases of theft but from traders' reluctance to expose themselves to opportunism. As a result, Malagasy grain trade resembles a flea market, with little or no forward contracting and high transactions costs. 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 International Food Policy Research Institute (IFPRI) in its series MTID discussion papers with number 27.

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Date of creation: 1999
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Handle: RePEc:fpr:mtiddp:27
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  1. Braguinsky, Serguey, 1999. "Enforcement of Property Rights during the Russian Transition: Problems and Some Approaches to a New Liberal Solution," The Journal of Legal Studies, University of Chicago Press, vol. 28(2), pages 515-44, June.
  2. Fafchamps, Marcel & Minten, Bart, 1998. "Relationships and traders in Madagascar," MTID discussion papers 24, International Food Policy Research Institute (IFPRI).
  3. Barrett, Christopher B., 1997. "Food marketing liberalization and trader entry: Evidence from Madagascar," World Development, Elsevier, vol. 25(5), pages 763-777, May.
  4. Gary S. Becker, 1968. "Crime and Punishment: An Economic Approach," Journal of Political Economy, University of Chicago Press, vol. 76, pages 169.
  5. Barrett, Christopher B., 1997. "Liberalization and food price distributions: ARCH-M evidence from Madagascar," Food Policy, Elsevier, vol. 22(2), pages 155-173, April.
  6. Kathryn Hendley & Peter Murrell & Randi Ryterman, 1998. "Law, Relationship, and Private Enforcement: Transactional Strategies of Russian Enterprise," William Davidson Institute Working Papers Series 72, William Davidson Institute at the University of Michigan.
  7. Berg, Elliot, 1989. "The liberalization of rice marketing in Madagascar," World Development, Elsevier, vol. 17(5), pages 719-728, May.
  8. Marris, Peter, 1971. "African Businessmen in a Dual Economy," Journal of Industrial Economics, Wiley Blackwell, vol. 19(3), pages 231-45, July.
  9. Kranton, Rachel E, 1996. "The Formation of Cooperative Relationships," Journal of Law, Economics and Organization, Oxford University Press, vol. 12(1), pages 214-33, April.
  10. Messick, Richard E, 1999. "Judicial Reform and Economic Development: A Survey of the Issues," World Bank Research Observer, World Bank Group, vol. 14(1), pages 117-36, February.
  11. Greif, Avner, 1993. "Contract Enforceability and Economic Institutions in Early Trade: the Maghribi Traders' Coalition," American Economic Review, American Economic Association, vol. 83(3), pages 525-48, June.
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