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Effects of transaction costs on supply response and marketed surplus

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  • Minot, Nicholas

Abstract

This paper explores the effect of transaction costs on aggregate supply and demand and marketed surplus. A five-good non-separable household model is used to illustrate the effect of transaction costs on a generic African household. Then, the paper examines the aggregate behavior of a market consisting of 50 such households with varying production capacities. The simulations reveal that transaction costs not only decrease market surplus but that they can substantially reduce the elasticity of supply and demand. Under other circumstances (when almost all households are net sellers), transaction costs can also make supply and demand more elastic. Finally, the results show that transaction costs generally increase the price elasticity of marketed surplus. The implications for research in agricultural marketing are discussed.

Suggested Citation

  • Minot, Nicholas, 1999. "Effects of transaction costs on supply response and marketed surplus," MTID discussion papers 36, International Food Policy Research Institute (IFPRI).
  • Handle: RePEc:fpr:mtiddp:36
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    References listed on IDEAS

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    1. Lofgren, Hans & Robinson, Sherman, 1999. "To trade or not to trade: non-separable farm household models in partial and general equilibrium," TMD discussion papers 37, International Food Policy Research Institute (IFPRI).
    2. Rutherford, Thomas F., 1995. "Extension of GAMS for complementarity problems arising in applied economic analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 19(8), pages 1299-1324, November.
    3. David E. Bloom & Jeffrey D. Sachs, 1998. "Geography, Demography, and Economic Growth in Africa," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(2), pages 207-296.
    4. Steven Were Omamo, 1998. "Transport Costs and Smallholder Cropping Choices: An Application to Siaya District, Kenya," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(1), pages 116-123.
    5. Binswanger, Hans & Yang, Maw-Cheng & Bowers, Alan & Mundlak, Yair, 1987. "On the determinants of cross-country aggregate agricultural supply," Journal of Econometrics, Elsevier, vol. 36(1-2), pages 111-131.
    6. Jayne, T S, 1994. "Do High Food Marketing Costs Constrain Cash Crop Production? Evidence from Zimbabwe," Economic Development and Cultural Change, University of Chicago Press, vol. 42(2), pages 387-402, January.
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    Citations

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    Cited by:

    1. Takeshima, Hiroyuki, 2009. "Sensitivity of welfare effects estimated by equilibrium displacement model: A biological productivity growth for semisubsistence crops in Sub-Sahara African market with high transaction costs," IFPRI discussion papers 936, International Food Policy Research Institute (IFPRI).
    2. Rashid, Shahidur & Sharma, Manohar & Zeller, Manfred, 2002. "Micro-lending for small farmers in Bangladesh," MTID discussion papers 45, International Food Policy Research Institute (IFPRI).
    3. Dorosh, Paul A. & Shahabuddin, Quazi, 2002. "Rice price stabilization in Bangladesh," MSSD discussion papers 46, International Food Policy Research Institute (IFPRI).
    4. Nicholas Minot & Lisa Daniels, 2005. "Impact of global cotton markets on rural poverty in Benin," Agricultural Economics, International Association of Agricultural Economists, vol. 33(s3), pages 453-466, November.
    5. Shahabuddin, Quazi & Dorosh, Paul A., 2002. "Comparative advantage in Bangladesh crop production," MTID discussion papers 47, International Food Policy Research Institute (IFPRI).
    6. Mathias, Wakulira, 2009. "Factors Influencing Hulling Of Coffee Among Farmers In Masaka District, Uganda," Research Theses 117798, Collaborative Masters Program in Agricultural and Applied Economics.
    7. Gulati, Ashok & Narayanan, Sudha, 2002. "Rice trade liberalization and poverty," MTID discussion papers 51, International Food Policy Research Institute (IFPRI).
    8. Shahidur Rashid, 2004. "Spatial Integration of Maize Markets in Post-liberalised Uganda," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 13(1), pages 102-133, March.
    9. Delgado, Christopher L. & Rosegrant, Mark W. & Wada, Nikolas & Meijer, Siet & Ahmed, Mahfuzuddin, 2002. "Fish as food," MTID discussion papers 52, International Food Policy Research Institute (IFPRI).
      • Delgado, Christopher L. & Rosegrant, Mark W. & Wada, Nikolas & Meijer, Siet & Ahmed, Mahfuzuddin, 2002. "Fish as food," MSSD discussion papers 52, International Food Policy Research Institute (IFPRI).

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    Keywords

    Markets Prices. ; Price regulation. ;

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