Transaction Costs and Market Institutions: Grain Brokers in Ethiopia

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14 (S -i ) of other traders in the same market capture these effects. Thus, the trader’s share of long-distance trade in total transactions is represented as (4) D i,t = α 0 + α 1 ω* + α 2 ν*+ α 3 γ + α 4 P -i + α 5 S -i + u 1 D i,t = 0 otherwise Traders who have chosen to trade long-distance in the central market are faced with a second choice, in the presence of brokers. Each trader evaluates the expected gains from searching directly without a broker with the expected gains from using a broker. A trader’s net profit from searching directly is a function of his or her individual transaction costs of search, social capital, and the time he or she requires to find a buyer or seller in the distant market (τ). A general form for a trader’s net profit function from direct search is Π i d = Π(γ i ,ω i ,ν i ,τ i ). When a trader uses a broker, his or her net profit no longer depends on the trader’s opportunity cost of search labor, social capital, or time that he or she requires to find a buyer or seller. Instead, the trader’s net profit from using a broker is a function of the broker’s social capital (γ b ), the broker’s commission (k), the trader’s opportunity cost of tying up his or her working capital, and the time required for the broker, rather than the trader, to complete the search (τ b ). A general form for a trader’s net profit from using a broker is Π b i = Π(γ b , k,ν i , τ b ).
15 A trader’s participation constraint for using a broker is that net gains are higher b with a broker than with direct search, such that Π i ≥ Π d i . If the broker is more efficient in search than the trader, γ b > γ i and τ b
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 and 16: 11 working capital holds at the 13%
Page 17: 13 4. TRADERS’ SEQUENTIAL CHOICE
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

Transaction Costs and Market Institutions: Grain Brokers in Ethiopia

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