Transaction Costs and Market Institutions: Grain Brokers in Ethiopia
Transaction Costs and Market Institutions: Grain Brokers in Ethiopia Transaction Costs and Market Institutions: Grain Brokers in Ethiopia
12 a greater number of traders likely to opt for opportunities to reduce these costs. In sum, the distribution of both types of transaction costs across traders demonstrates the heterogeneity of individual market actors and allow the testing of the impact of these costs on the use of the brokerage institution in the Ethiopian grain market, addressed below.
13 4. TRADERS’ SEQUENTIAL CHOICE AND USE OF BROKERS In constrained market environments, long-distance trade involves high coordination costs and considerable risk. Each trader is faced with the choice of incurring higher search costs by trading in a distant market or trading locally, in a familiar market, where search costs are relatively low but opportunities are limited. In Ethiopia, grain wholesalers in regional market centers, located 300 to 500 kilometers from the central market, can either transact locally in their own market towns or trade in the distant central market. This choice is partly determined by the type of region in which traders are based. Wholesalers located in surplus production regions tend to purchase grain locally from smaller traders and farmers and sell this grain in the distant central market. Wholesalers located in the deficit regions tend to procure grain from the central market and to sell it locally to retailers and consumers (Table 2). Because long-distance transactions entail higher search costs and are enhanced by larger endowments of social capital, the choice to trade in a distant market is endogenous to each trader’s unique search costs and social capital. A trader’s share of long-distance transactions depends on his or her opportunity costs of search labor and of working capital, social capital, as well as market-level effects, such as the trader’s location. The average share of long-distance purchases (P -i ) and sales
- Page 1 and 2: MSSD DISCUSSION PAPER NO. 31 TRANSA
- Page 3 and 4: ii List of Tables Table 1 - Instrum
- Page 5 and 6: 1 1. INTRODUCTION Transaction costs
- Page 7 and 8: 3 traders’ profit functions, usin
- Page 9 and 10: 5 wholesalers (Lirenso, 1993; Amha,
- Page 11 and 12: 7 the number of family members avai
- Page 13 and 14: 9 trader’s social capital and act
- Page 15: 11 working capital holds at the 13%
- Page 19 and 20: 15 A trader’s participation const
- Page 21 and 22: 17 5. ESTIMATION RESULTS FOR TRADER
- Page 23 and 24: 19 7. ESTIMATION RESULTS FOR TRADER
- Page 25 and 26: 21 second model specification, the
- Page 27 and 28: 23 trading networks, along with a r
- Page 29 and 30: 25 Table 1. Instrumental Variables
- Page 31 and 32: 27 Table 3. Variable Tobit Estimati
- Page 33 and 34: 29 Figure 1. Opportunity Cost of Wo
- Page 35 and 36: 31 BIBLIOGRAPHY Aitken, M., G. Garv
- Page 37: 33 Rubinstein, Ariel and Asher Woli
12<br />
a greater number of traders likely to opt for opportunities to reduce these costs.<br />
In sum, the distribution of both types of transaction costs across traders<br />
demonstrates the heterogeneity of <strong>in</strong>dividual market actors <strong>and</strong> allow the test<strong>in</strong>g<br />
of the impact of these costs on the use of the brokerage <strong>in</strong>stitution <strong>in</strong> the<br />
<strong>Ethiopia</strong>n gra<strong>in</strong> market, addressed below.
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