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Transaction costs and market institutions


  • Gabre-Madhin, Eleni Z.


This paper examines the effect of transaction costs of search on the institution of grain brokers in Ethiopia. Primary data are used to derive traders' shadow opportunity costs of labor and of capital from IV estimation of net profits. A two-step Tobit model is used in which traders first choose where to trade and then choose whether to use a broker to search on their behalf. The results confirm traders' individual rationality in choosing brokerage, showing high transaction costs are linked to increased broker use while high social capital reduces broker use.

Suggested Citation

  • Gabre-Madhin, Eleni Z., 1999. "Transaction costs and market institutions," MTID discussion papers 31, International Food Policy Research Institute (IFPRI).
  • Handle: RePEc:fpr:mtiddp:31

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    References listed on IDEAS

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    8. Ariel Rubinstein & Asher Wolinsky, 1987. "Middlemen," The Quarterly Journal of Economics, Oxford University Press, vol. 102(3), pages 581-593.
    9. Aitken, Michael J & Garvey, Gerald T & Swan, Peter L, 1995. "How Brokers Facilitate Trade for Long-Term Clients in Competitive Securities Markets," The Journal of Business, University of Chicago Press, vol. 68(1), pages 1-33, January.
    10. Harold Demsetz, 1968. "The Cost of Transacting," The Quarterly Journal of Economics, Oxford University Press, vol. 82(1), pages 33-53.
    11. Hoff, Karla & Stiglitz, Joseph E, 1990. "Imperfect Information and Rural Credit Markets--Puzzles and Policy Perspectives," World Bank Economic Review, World Bank Group, vol. 4(3), pages 235-250, September.
    12. repec:taf:jdevst:v:32:y:1995:i:1:p:112-143 is not listed on IDEAS
    13. Bob Baulch, 1997. "Testing for food market integration revisited," Journal of Development Studies, Taylor & Francis Journals, vol. 33(4), pages 512-534.
    14. Robert M. Townsend, 1978. "Intermediation with Costly Bilateral Exchange," Review of Economic Studies, Oxford University Press, vol. 45(3), pages 417-425.
    15. Mundlak, Yair, 1996. "Production Function Estimation: Reviving the Primal," Econometrica, Econometric Society, vol. 64(2), pages 431-438, March.
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