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Property rights in a flea market economy

  • Marcel Fafchamps
  • Bart Minten

This paper studies liberalised 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 are fairly rare, except in cases of theft - but from traders` reluctance to expose themselves to malfeasance. As a result, Malagasy grain trade has high transactions costs, and little or no forward contracting. 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 University of Oxford, Department of Economics in its series Economics Series Working Papers with number WPS/1999-25.

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Date of creation: 01 Nov 1999
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Handle: RePEc:oxf:wpaper:wps/1999-25
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  1. Fafchamps, Marcel & Minten, Bart, 1998. "Relationships and traders in Madagascar," MTID discussion papers 24, International Food Policy Research Institute (IFPRI).
  2. Gary S. Becker, 1974. "Crime and Punishment: An Economic Approach," NBER Chapters, in: Essays in the Economics of Crime and Punishment, pages 1-54 National Bureau of Economic Research, Inc.
  3. 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.
  4. 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.
  5. Marris, Peter, 1971. "African Businessmen in a Dual Economy," Journal of Industrial Economics, Wiley Blackwell, vol. 19(3), pages 231-45, July.
  6. 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.
  7. Berg, Elliot, 1989. "The liberalization of rice marketing in Madagascar," World Development, Elsevier, vol. 17(5), pages 719-728, May.
  8. Kathryn Hendley & Peter Murrell & Randi Ryterman, 1998. "Law, Relationships, and Private Enforcement: Transactional Strategies of Russian Enterprises," Electronic Working Papers 98-001, University of Maryland, Department of Economics.
  9. Barrett, Christopher B., 1997. "Liberalization and food price distributions: ARCH-M evidence from Madagascar," Food Policy, Elsevier, vol. 22(2), pages 155-173, April.
  10. 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.
  11. Barrett, Christopher B., 1997. "Food marketing liberalization and trader entry: Evidence from Madagascar," World Development, Elsevier, vol. 25(5), pages 763-777, May.
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