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Market institutions, transaction costs, and social capital in the Ethiopian grain market:

  • Gabre-Madhin, Eleni Z.
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    Using a New Institutional Economics framework, this research report addresses a fundamental aspect of markets: how do buyers and sellers find each other and coordinate the transfer of goods? The report quantifies the transaction costs related to search faced by traders in Ethiopia and analyzes the role of brokers in minimizing these transaction costs. The transaction costs of market search are significant in the Ethiopian grain market. Estimated as the opportunity cost of labor time spent searching for a trading partner and the opportunity cost of holding capital fixed during that search, these costs represent one-fifth of all marketing costs. This research report demonstrates that traders minimize their transaction costs of search by using brokers, who enable them to exchange with unknown partners. The report also shows that at the level of the grain economy as a whole, brokers significantly increase the total economic welfare by enabling a more efficient allocation of search effort by traders. Thus, traders with relatively higher search efficiency and lower search costs choose to search on their own, while traders with lower search efficiency and higher search costs choose to use a broker.

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    File URL: http://www.ifpri.org/sites/default/files/publications/rr124.pdf
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    Paper provided by International Food Policy Research Institute (IFPRI) in its series Research reports with number 124.

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    Date of creation: 2001
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    Handle: RePEc:fpr:resrep:124
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    1. Townsend, Robert M, 1978. "Intermediation with Costly Bilateral Exchange," Review of Economic Studies, Wiley Blackwell, vol. 45(3), pages 417-25, October.
    2. Steve Tadelis, 1997. "What's in a Name? Reputation as a Tradeable Asset," Working Papers 97033, Stanford University, Department of Economics.
    3. Nabli, Mustapha K. & Nugent, Jeffrey B., 1989. "The New Institutional Economics and its applicability to development," World Development, Elsevier, vol. 17(9), pages 1333-1347, September.
    4. George J. Stigler, 1961. "The Economics of Information," Journal of Political Economy, University of Chicago Press, vol. 69, pages 213.
    5. Norton, Seth W, 1992. "Transaction Costs, Telecommunications, and the Microeconomics of Macroeconomic Growth," Economic Development and Cultural Change, University of Chicago Press, vol. 41(1), pages 175-96, October.
    6. North, Douglass C., 1989. "Institutions and economic growth: An historical introduction," World Development, Elsevier, vol. 17(9), pages 1319-1332, September.
    7. Narayan, Deepa & Pritchett, Lant, 1997. "Cents and sociability : household income and social capital in rural Tanzania," Policy Research Working Paper Series 1796, The World Bank.
    8. Negassa, Asfaw & Jayne, Thomas S., 1997. "The Response of Ethiopian Grain Markets to Liberalization," Food Security Collaborative Working Papers 55595, Michigan State University, Department of Agricultural, Food, and Resource Economics.
    9. Ravallion, Martin & Dearden, Lorraine, 1988. "Social Security in a "Moral Economy": An Empirical Analysis for Java," The Review of Economics and Statistics, MIT Press, vol. 70(1), pages 36-44, February.
    10. Yavas, Abdullah, 1992. "Marketmakers versus matchmakers," Journal of Financial Intermediation, Elsevier, vol. 2(1), pages 33-58, March.
    11. Zeller, Manfred & Ahmed, Akhter U. & Babu, Suresh Chandra & Broca, Sumiter S. & Diagne, Aliou & Sharma, Manohar, 1996. "Rural finance policies for food security of the poor," FCND discussion papers 11, International Food Policy Research Institute (IFPRI).
    12. Sattinger, Michael, 1995. "Search and the Efficient Assignment of Workers to Jobs," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(2), pages 283-302, May.
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