sign in sign up
<<
Home , Transaction cost

Transaction of Exchange in Agriculture: A Survey Agham C. Cuevas University of the Philippines Los Baños Email: [email protected]

ABSTRACT

The concept of transaction has been around for more than 75 years. It has been used to explain every economic phenomenon that does not fit with standard neoclassical predictions. It has been applied to so many fields, its definition varying with every application. This paper surveys the literature on transaction costs in general, as well as those that apply transaction costs to agriculture. It focuses on the role of transaction costs in exchange in agriculture, particularly in the context of the ’s decision to engage in exchange, in both input and output sides. The survey literature finds a confluence of definitions of transaction cost as applied to theoretical and empirical models. Coasian and Williamsonian definitions are used in interpreting fixed transaction costs while neoclassical and definitions (i.e., the concept of band) characterize proportional transaction costs. The prominence of transport cost and the effect of distance and isolation in many of the analyses points to the influence of the new research stream. Measurement of transaction cost as an ad valorem tax also references the trade concept of transaction cost.

Keywords: transaction cost, agriculture, agricultural exchange JEL Classification: B52, D23, Q13 22 Agham C. Cuevas

INTRODUCTION history of the concept to aid in understanding its various definitions and applications. It then Market failures are pervasive in looks at the application of transaction cost to agriculture, especially in the developing world. exchange in agriculture and identifies the links De Janvry, Fafchamps, and Sadoulet (1991) of these interpretations to conceptions in other explain that market failures occur when the branches of . cost of transaction through market exchange This paper is structured as follows. The creates disutility greater than the gain it next section presents a short review of the produces, resulting in the market not being used different definitions of transaction cost. The for transaction. Most affected by these failures third section surveys the application of the are peasant that often have to face concept to agriculture, focusing on transaction high transaction costs to access markets. Thus, costs emerging from agricultural exchange. The transaction cost plays a central role in peasant last section summarizes the paper and provides household’s resource allocation decisions. some research and policy implications. Pingali, Khawaja, and Meijer (2005) argue that increased transaction costs deter small farmers from entering the market, thus depriving DEFINITIONS them of the benefits from commercialization in agriculture. Interventions aimed at reducing While many definitions of transaction cost transaction cost would encourage increased can be found in literature, only a few have farmer participation in competitive markets, been operationalized. The definitions have which would increase their productivity and been diverse and fragmented, with no standard thus meet the broader poverty alleviation terminology. According to Benham and objectives. Benham (2001, 1), “many different definitions The concept of transaction cost has been of transaction costs appear in literature…These around for more than 75 years, ever since definitions offer powerful conceptual insights, Hicks (1935) attempted to incorporate the but they have not been translated into widely notion of friction as a cost in monetary theory. accepted operational standards.” Since then, it has been used to explain every Throughout the history of its development, economic phenomenon that does not fit with transaction cost has assumed different forms standard neoclassical predictions. It has been and different meanings. For Hicks (1935) applied to so many fields, its definition varying and the monetarists, it is brokerage cost and with every application. This heterogeneity and the cost of investing in financial markets; for lack of a common definition have transformed Coase (1937), it is the cost of using the price transaction cost into a catchall term, very much mechanism; for Stigler (1961), it is ; like production cost. This has no doubt invited a for Niehans (1987), it is a catchall term for a lot of criticism from within and outside the field heterogeneous assortment of costs involved in of economics. the transfer of ownership from one individual to If the concept of transaction cost is central another. Arrow (1969 as cited by Benham and to explaining and mitigating market failures in Benham 2001) defines it as the cost of running agriculture, then having a clear description of the . Barzel (1997 as cited by the concept is imperative. With this objective Benham and Benham 2001) defines transaction in mind, this paper surveys literature on cost as the cost associated with the transfer, transaction cost to be able to sketch a brief capture, and protection of rights. Foley (1970) Asian Journal of Agriculture and Development, Vol. 11, No. 1 23 described it as the effort required to inform in , Demsetz’s “cost of buyers and sellers of the existence of a supply exchanging ownership titles” interpretation, or demand for a commodity, and of the price. the transaction technology construct in the More recent authors classify transaction Arrow-Debreu general equilibrium tradition, costs and define them within the context of and the transaction sector measurement thread their categories. For instance, Furubotn and pioneered by Wallis and North (1986). Richter (2005, 40) describe the concept as The branch focuses on the “…the costs of resources utilized for the impact of the transactions’ characteristics on creation, maintenance, use, change, and so the mode governing them. This branch traces on of and organizations...When its roots to Coase (1937), with transaction considered in relation to existing property and cost defined as “the cost of using the price contract rights, transaction costs consist of the mechanism,” which was operationalized costs of defining and measuring resources or through Stigler’s (1961) search cost, Marshack’s claims, plus the cost of utilizing and enforcing (1950) information cost, and the Williamsonian the rights specified. Applied to the transfer of “transaction cost approach.” However, existing property rights and the establishment Williamson’s (1998) strategy to operationalize or transfer of contract rights between transaction cost “is not by elaborating the individuals (or legal entities), transaction cost concept itself, but by replacing it with detailed include the cost of information, negotiation, analysis of contractual and organization and enforcement.” arrangements.” As a result, this framework Furubotn and Richter (2005, 43) classify studies governance in terms of transactional transaction cost into three categories: market and human factors which determine whether transaction cost or the “cost of using the a transaction takes place in the market or market,” managerial transaction costs or the internally. The notion of transaction costs is “cost of exercising the right to give order within largely used in an informal way to address the the firm,” and political transaction costs or the differences in performance that result from this “array of costs associated with the running analysis. Hence, Williamson’s transaction cost and adjusting of the institutional framework analysis takes place as an exploration of the of a polity.” They also identify two variants causes which give rise to transaction costs.” of costs in each category: (1) fixed transaction (Klaes 2000b, 212) Although Williamson did not costs, that is, “specific in setting articulate clearly the concept of transaction cost up institutional arrangements;” and (2) variable in his original framework, later developments in transaction costs, that is, “costs that depend on transaction cost analysis have provided a better the number or volume of transactions.” understanding of the concept. Rindfleisch and Hardt (2006), on the other hand, placed Heide (1997) summarize the source and nature existing literature on transaction costs under the of the most common forms of transaction costs umbrella of transaction cost economics divided encountered in transaction cost analysis. into three complementary branches: exchange, The measurement branch has to do with the governance, and measurement. measurement of inputs’ productivity in team The exchange branch defines transaction production, attributed to Alchian and Demsetz cost as the cost of making transactions. It (1972 as cited by Hardt 2006)—categorized focuses on the role of these costs resulting as the agency sub-branch. It deals with the from market exchange. Included under this costs of ascertaining the of the good branch is the Hicksian transaction cost tradition before the transaction is concluded, a concept 24 Agham C. Cuevas

originally put forward by Barzel (1982), known the new (i.e., transaction as the Barzel sub-branch. Alchian and Demsetz cost economics). (1972) posit that team production is a better Owing to the type of issues usually option in the market if it yields an output larger examined, the neoclassical literature on than separable production cost and enough to transaction cost generally models transaction cover the cost of supervision. Thus there is a costs in an analytical way identical to transport need to measure input productivity and rewards. charges and taxes. These include the effects Measurement cost, which a firm is expected to of such costs on the volume of trade, abilities minimize, is thus composed of metering costs to , the bunching of transactions, and the cost of detecting parties responsible for intermediation, and the existence and efficiency raising production output. These costs are akin of equilibrium, occasionally delving on property to agency costs. Hence, the existence of a firm rights determination issues like the role of and what form it will take depend on how well middlemen and the . Allen it minimizes these costs. (2000, 902), quoting Stavins (1995), provides Barzel’s thread of research focused on a neoclassical approach description of what measuring the characteristics of any trade transaction costs are: good. Barzel (1982) worked on the premise “In general, transaction costs are that the amount purchased by the buyer is ubiquitous in market economies and can determined not only by the posted price but arise from the transfer of any property also by measurement costs. Similarly, the right because parties to exchange must find one another, communicate and seller ascertains the exchanged . Ways by exchange information. There may be a which these measurement costs may be reduced necessity to inspect and measure goods include product warranties, seller’s reputation, to be transferred, draw up contracts, consult with lawyers or other experts and standards. and transfer title. Depending upon who Allen (2000), on the other hand, identifies provides these services, transaction two main streams of literature on transaction costs can take one of two forms, inputs costs, simultaneously claiming ownership or resources—including time—by a buyer and/or a seller or a margin over the term: the property rights stream, between buying and selling price of a which defines transaction cost as “the cost commodity in a given market.” of establishing and maintaining property The preceding discussion highlights the rights,” and the neoclassical stream, which profusion of conceptual interpretations as defines transaction cost as “the cost resulting well as the lack of consensus on a common from the transfer of property rights.” The definition of transaction cost. While attempts property rights literature, beginning with to provide structure in the literature and define Coase (1937), consistently focuses on the transaction costs typologically have been role of transaction costs in determining the notable, such typologies vary from author to of property rights (i.e., institutions author and in some instances are incongruent and institutional arrangements that generate with one another. Take for example Allen’s incentives for behavior). This stream calls into (2000) and Hardt’s (2006) attempts to organize question fundamental neoclassical concepts the literature. Under Allen’s dichotomy, the like efficiency and the nature of production. research of Wallis and North (1986) falls Included in this branch are the subfields of under the property rights school together with and economics, the new , and Asian Journal of Agriculture and Development, Vol. 11, No. 1 25

Williamson (1979) and Coase (1937) and apart theory of contracts. It follows Coase’s (1937) from Hicks (1935) and the general equilibrium decomposition of the steps involved in tradition. In Hardt’s interpretation, however, concluding a transaction, thus distinguishing Wallis and North’s research thread belong to between: (1) the costs of locating and attracting the exchange branch with the neoclassicals, potential trading partners and pre-sale while Coase and Williamson are under the inspection, (2) contracting and fulfillment costs, governance branch. and (3) policing and enforcement costs. Although not serious enough to create The institutional interpretation applies confusion, such nuances of conflict illustrate the the notion of transaction cost to alternative complexity of developing a unified theoretical forms of economic coordination. It applies definition of transaction cost. To this effect, Coasian marketing costs to nonmarket settings, Klaes (2008, 1) advises that “circumspect comparing market coordination alongside definition specific to the particular context nonmarket forms within a given set of alternative in which one seeks to use the concept should institutions. Transaction cost is interpreted as help [in] avoiding semantic pitfalls.” He views the cost of economic coordination. the range of extant applications of the concept By far, the broadest interpretation of of transaction cost as forming a spectrum of transaction cost that has been operationalized broadening scope: (1) narrow interpretations may be attributed to Wallis and North (1986). typical of the monetary and general equilibrium They attempted to develop a transaction cost literature, (2) relational interpretations based on concept that encompasses an assortment of how economic agents interact with each other definitions. In the process, they developed the beyond traditional economic dimensions of notion of the transaction sector. The transaction price and quantity signals, and (3) institutional sector is an auxiliary construct for measuring interpretations. parts of the transaction cost in an economy. Monetary interpretations of transaction Basically, transaction costs are defined as the cost characterize it as the direct costs that an costs related to the realization of exchange in economic agent incurs when engaging in a an economy. As such, all economic activities market transaction. These costs are expressed and actors related to economic exchange can be as a reduction in the value of a transaction, divided into two categories: (1) transaction sector, analogous if not equivalent to a transaction tax. composed of those associated with exchange; More advanced notions conceptualize these and (2) transformation sector, composed of the costs as the direct monetary costs incurred, ones not associated. Consequently, all economic like brokerage fees and transport costs, when activities and all actors in an economy belong to engaging in a particular monetary transaction one of the two sectors (Chobanov, Egbert, and resulting from the use of intermediary services. Giuredzheklieva 2007). However, being entrenched in the neoclassical Wallis and North (1986) equated tradition, it leaves most if not all micro-structural transaction cost with the costs of using details of the exchange context unspecified. transaction services—that is, activities resulting Conversely, relational interpretations of from using markets, the costs of which are transaction cost rely on a more detailed construct recorded in official statistics. The transaction of how agents interact with one another when sector therefore contains the costs related to the they engage in market transactions (exchange). exchange of services and goods on markets and Subsumed but not central here is the economic also those necessary for the protection of private 26 Agham C. Cuevas

property rights. The transaction sector includes stages in a trade transaction: contact, contract, four categories: (1) transaction industries in the and control, all of which bring about transaction private sector, (2) transaction costs within firms costs. in the non-transaction industries, (3) transaction Samuelson’s “iceberg model” (1954) is one services in the public sector, and (4) transaction of the most common ways of operationalizing costs in the non-transaction services (Chobanov, transaction costs in trade. The basic idea is that Egbert, and Giuredzheklieva 2007). trade involves transaction costs and that these Since transaction activities are exchanged may be simply thought of as a fraction of the for and such exchanges are picked up traded good itself, in that “only a fraction of the in the , then, in principle, ice exported reaches its destination as unmelted they could be measured from either side of ice.” This model provides another answer to the accounts as value of output or value of the basic question on the fate of the transaction input. Wallis and North (1986) worked with costs’ revenues; it also clarifies how a reduction an output measure, estimating the value added in transaction costs saves real resources and by transaction sector activities. Transaction makes an economy more efficient. These sector output therefore represents expenditure transaction costs can be grouped into three on enabling and facilitating the exchange broad categories: geography, technology/ process, thereby helping capture the gains from infrastructure, and /policy related increased specialization and providing a system transaction costs (Bussolo and Whalley 2002). of property rights within which the productive A more important application of transaction activity takes place. cost in trade is perhaps its role in determining Trade costs, which are another class of the trade pattern in the context of imperfect costs, are conceptually analogous to transaction and increasing returns. Krugman costs. Broadly defined, they include all costs (1980 as cited by Holzhey 2003) shows that in incurred in getting a good to a final user other the case of two identical countries, except for than the of producing the good market size, the country with the larger home itself: transportation costs (both freight and market for (manufacturing) goods subject to time costs), policy barriers (tariff and non- scale economies will be the exporter of tariff barriers), information costs, contract these goods, but only if transaction costs are enforcement costs, costs associated with the neither too low (zero) nor too high (prohibitive). use of different , legal and regulatory Transaction costs in trade plays a major role in costs, and local distribution costs (wholesale the analysis of the new economic geography and retail). Trade costs are reported in terms stream of research. of their ad-valorem tax equivalent (Anderson Going through the history and the myriad and van Wincoop 2004). Den Butter and Mosch interpretations of transaction cost, one can (2003, 2) defines the transaction cost in trade observe that the notion of transaction cost in much the same way: “…transaction costs has become the theoretical equivalent of the in trade do not only comprise traditional costs metaphorical notion of friction. Niehans (1987) associated with transportation (distance), trade describes transaction cost as a catchall term for barriers, tariffs, etc. but also search costs, costs a heterogeneous assortment of inputs. The term on gathering information of product quality “transaction cost” has evolved to the point that and the reliability of the reading partner, legal some critics claim it includes any cost that is costs, control costs, and costs associated with convenient and elusive enough to avoid critical international payments.” They identify three examination (Allen 2000). As Klaes (2000b, Asian Journal of Agriculture and Development, Vol. 11, No. 1 27

193) puts it, “transaction costs emerged as an Most applications of the transaction cost attempt to replace the 19th century notion of theory to agriculture fall under three broad friction, only to gradually become regarded as themes: contracts and property rights issues, its 20th century equivalent.” organizations and institutional arrangements, This broadening however, while interpreted and market exchange. A number of studies had by some in a negative way, has enlarged the used the transaction cost approach to analyze scope of economic analysis. According to agricultural contracts. Alston, Datta, and Klaes (2000a, 588), “…the catchall nature with Nugent (1984) analyzed the choice between which the term is frequently employed,…is at labor and sharecrop contracts in a model the same time evidence of the heuristic power with transaction costs. Allen and Lueck (1998) of the concept of transaction costs (cf. Dixit examined modern sharecrop contracts using 1996). Transaction costs may be regarded as the transaction cost approach through a model an umbrella which enables many flowers to in which agents are risk neutral and contract blossom.” rules are chosen to maximize expected joint wealth. Dorward (1999 as cited by Makhura 2001) developed a methodology for modeling TRANSACTION COST IN AGRICULTURE negotiated choice of contractual arrangements in buyer/seller relationships in agriculture, The application of transaction cost to integrating in the buyer’s decisions his or agriculture cuts across the various subdisciplines her pure transaction cost and associated of the field. Agriculture is a host to the spectrum transformation cost. Purcell and Hudson of interpretations—from the monetary to the (2004 as cited by Macher and Richman 2008) relational to the institutional. Here can be examined the growth of long-term contracting, found the confluence of the property rights the rise of vertical alliances, and the prevalence and neoclassical schools of thought and the of integration between feedlots and beef amalgamation of the exchange, governance, processors brought about by site specificity. and agency branches of transaction cost Lema (2006) presents an analysis of the effect of economics. The variety of issues that beleaguer tenancy contracts on soil conservation and input agriculture—missing markets, information use in the Pampas (South American lowlands). asymmetry, risk and , non- Frisvold (2005) developed and econometrically separability of consumption and production, tested a model of labor contractual choice in incomplete property rights, incomplete developing countries, focusing on the choice contracts, and institutional failures, to name between directly hiring labor on a spot market a few—make it a fertile breeding ground for and relying on labor contractors. His theoretical the application and testing of transaction cost model examines the role of market and theory. Macher and Richman (2008, 190), factor endowments on contract choice and the who comprehensively reviewed the empirical role of labor contracting as an institutional literature on transaction cost economics across innovation to reduce transaction costs associated multiple social science disciplines and business with the use of hired labor. fields, quoted Masten (2000) as saying, Under the agricultural organization theme, “agricultural transactions provide a rich area for Buduru and Brem (2007) explain transaction application and refinement of transaction cost cost for the different paths of organizational theory.” adjustments in the former state and collective 28 Agham C. Cuevas

farms in the Czech Republic after 1989. They cost includes expenses and opportunity costs, focus on the strategic interactions among both fixed and variable, arising from the stakeholders in the agricultural organization exchange in property rights (Makhura 2001). undergoing restructuring. Valentinov and Transaction costs in this context, however, do Curtiss (2005) applied transaction cost not only include the costs of exchange itself, theory to explain organizational change in but also encompass costs associated with the transitional agriculture of central and eastern reorganization of household labor and other European countries. Allen and Lueck (1998), resources in order to produce enough for on the other hand, explain why farming has the market (Makhura, Kirsten, and Delgado generally not converted from small, family 2001). This interpretation of transaction costs based firms into large factory-style corporate draws extensively from North’s (1984, 256) firms using a framework derived from Coase’s definition of the concept as “…the costs of (1937) seminal work on the . specifying and enforcing contracts that underlie Fuentes (1998) examined, using transaction exchange. They include all the costs involved in cost economics as the framework of analysis, capturing the gains from trade…, the resources some specific institutional arrangements that devoted to the organization and integration of arise when small, village-based paddy traders the production and marketing of goods and and local farmers are used as middlemen and services…” commission agents, respectively, to procure Likewise, Eggertsson (1990, 14) developed paddy supplies for large rice millers, traders, the following definition of transaction cost: and retailers/wholesalers in rural Philippines. “the costs that arise when individuals exchange He found that the institutional arrangements ownership rights to economic assets and enforce examined generally conform to the propositions their exclusive rights.” He said transaction costs set forth in transactional cost economics originate from one or more of the following literature. Naseer, Evenson, and De Silva activities: (1) searching for information about (2007) examined whether or not community- potential contracting parties and the price based networks and associations play a role and quality of the resources in which they in improving agricultural productivity and have property rights (includes personal time, explored the interaction between travel expense, and communication costs); and the relationship of transaction cost of (2) bargaining to find the true position of production and proximity to markets. contracting parties, especially when prices (including and rates) are not Transaction Costs in Agricultural Exchange determined exogenously; (3) making contracts (formal or informal)—that is, defining the terms While the first two categories are no less of contract; and (4) enforcing the contract and important than the third one, the discussions collection of damages when partners fail to in this section focus on the role of transaction observe their contractual obligations. costs in exchange in agriculture, particularly Hobbs (1995) defines a transaction as an in the context of a household’s decision to exchange occurring between the two stages of a engage in market exchange, in both input and production or distribution chain as the product output sides. Such emphasis narrows down the changes in form and/or in ownership rights, discussion to transaction costs arising from which can transpire between two firms or individual agents or for basic economic units between divisions within one firm. Transaction such as the household. This type of transaction costs are therefore defined as the costs of Asian Journal of Agriculture and Development, Vol. 11, No. 1 29 carrying out this exchange; included are the important type of transaction cost in agriculture. costs of discovering prices (information costs), They posit that due to the pervasive existence the costs of arriving at an agreement to undertake of transaction costs, agents have to incur high the transaction (negotiation costs), and the costs to access distant markets, even if these costs of ensuring that the contract is adhered markets are perfect. This results in wide bands to (monitoring or enforcement costs). Hobbs between sale price and purchase price. A market (1997) provides a more detailed description may fail when households face these wide price of the aforementioned categories. Information margins. costs are incurred prior to an exchange and Key, Sadoulet, and de Janvry (2000) refined include the costs of obtaining price and product Sadoulet and de Janvry’s interpretation by information and the cost of identifying suitable defining fixed transaction costs and proportional trading partners. Negotiation costs are the transaction costs. Fixed transaction costs are costs of actually carrying out the exchange invariant, regardless of the quantity of a traded and may include commission costs, the costs good. They may include the costs of: searching of physically negotiating the terms of the for a customer or salesperson with the best exchange, and the costs of formally drawing up price, or searching for market; negotiating the contract. Monitoring and enforcement costs, and bargaining; and screening, enforcement, which occur after the exchange has taken place, and supervision. Search costs are often lumpy are the costs of ensuring that the terms of the since a farmer may incur the same search agreement (e.g., quality standards or payment costs to sell one ton or ten tons of a product. arrangements) are carried out by the parties to Negotiation and bargaining costs are important the transaction. when there is imperfect information on prices Holloway et al. (2000) interpret transaction (often negotiation and bargaining take place costs as the pecuniary (observable) and non- once per transaction, these costs are invariant pecuniary (non-observable) costs associated to the size of the transaction). Screening costs with arranging and carrying out an exchange of are incurred by farmers who sell their product, . Included are both the cost of land, or labor on credit because they have to exchange and the complete set of costs implied screen buyers to make sure they are reliable. when households must reorganize and reallocate They may have to pay legal enforcement costs labor to generate a marketable surplus. Staal, in case of default. Farmers may also have to Delgado, and Nicholson (1997) include the screen potential seed, pesticide, or labor sellers cost of transferring the product, which typically when there is asymmetric information as to the involves transportation, processing, packaging, quality of inputs. Farmers who hire labor may and securing title, if necessary, to the set of incur supervision costs that do not depend on transaction costs. Omamo (1998), on the other the quantity of labor hired, as one supervisor hand, identifies farm-to-market transaction can almost easily monitor one or five workers. costs, which include transport costs and other An earlier work by Goetz (1992) also marketing costs like searching, haggling, and makes use of the notion of fixed transaction waiting costs. costs, describing it as the cost of discovering Sadoulet and de Janvry (1995) describe trading opportunities and the household’s cost transaction costs as typically involving the costs of observing market prices to make transaction of information, search, negotiation, screening, decisions, which he operationalized in terms of monitoring, coordination, and enforcement. reduced leisure time. They also include transportation costs as an 30 Agham C. Cuevas

Proportional transaction costs, on the other household specific, such as cost borne out of hand, as defined by Key, Sadoulet, and de Janvry the inability to access assets. They can be also (2000) include per-unit costs of accessing the same for all farmers in a particular location markets associated with transportation and such as costs due to the quality of land. These imperfect information. They raise the price costs can arise in both input and output markets effectively paid by buyers and lower the price and affect market participation. Location effectively received by sellers of a good, thus specific transaction costs and their levels, on the creating the price band within which some other hand, are due to variances across regions. households may find it unprofitable to either Farmers in high-potential areas may experience sell or buy. a lower total level of transaction costs than those Pingali, Khawaja, and Meijer (2005) in low-potential areas. Transaction costs may categorize transaction costs as they occurred in also vary by product (crop-specific transaction modern agri-food systems, namely: specific to costs). High value crops, which are perishable, the firm, farm-specific, location- are often associated with high transaction costs. specific, and crop-specific. Agribusiness firms are usually situated in near-monopsonistic Transaction Costs and Market Participation markets. Hayes (2000) enumerates the Transaction costs can significantly affect transaction costs associated with dealing with a agents’ decisions on whether or not to participate large number of small farms: in the market. As previously mentioned, • bureaucratic costs and distortions associated transaction costs raise the price effectively with managing and coordinating integrated paid by buyers and lower the price effectively production, processing, and marketing; received by sellers of a good, creating a • value of the time used to communicate price band within which some agents find it with the participating farms and coordinate unprofitable to either sell or buy (Key, Sadoulet, them; and de Janvry 2000). In agriculture, the price • costs involved in establishing and band explains why many subsistence farmers monitoring long-term contracts; prefer to produce for home consumption and • cost of incentives used to convince farmers lack access to profitable market opportunities to voluntarily participate in integrated (De Janvry, Fafchamps, and Sadoulet 1991). production; Poor infrastructure and distance from the • forgone when batch market which increase transportation costs, production replaces commodity production; high marketing margins due to merchants • screening costs linked to with local power, high search and about the reliability of potential suppliers or recruitment costs due to imperfect information, buyers and the uncertainty about the actual and supervision and incentive costs to labor quality of goods; and increase the magnitude of the price band • transfer costs associated with the legal or (Sadoulet and de Janvry 1995). physical constraint on the movement and Goetz (1992) attributes the failure to transfer of goods. participate in specific commodity markets to high fixed transaction costs. Renkow, Farm specific transaction costs are those Hallstrom, and Karanja (2003) found that associated with participation in markets that economic isolation is positively associated with are unique to the farm, given the household the size of the fixed transaction costs. Although and farm characteristics. Such costs may be both fixed and proportional transaction costs Asian Journal of Agriculture and Development, Vol. 11, No. 1 31 affect market participation decisions, Key, Age, gender, and education can affect Sadoulet, and de Janvry (2000) show that only transaction costs in a variety of ways. Age proportional transaction costs are significant can indicate farming experience, which makes in the household’s market supply decision. certain informational and search costs easier and Heltberg and Tarp (2002) used exogenous relatively cheaper. Compared with men, women variables such as distance and types of transport have greater variability of transaction costs as proxies for proportional transaction costs related to accessing land and credit. Education and information variables to determine fixed matters in reducing the costs of searching for transaction costs. Their findings highlight the and processing information. importance of non-price factors like technology, A strong link between risk behavior and transport infrastructure, farm endowments, and market participation exists. On the one hand, area characteristics. uncertainty is reduced by market participation Pingali, Khawaja, and Meijer (2005) argue for as long as it is supported by better that increased transaction costs deter small information, communication, and increased farmers from entering the market, thus depriving access to market outlets. On the other, greater them of the benefits from commercialization in market participation may exacerbate uncertainty agriculture. Interventions aimed at reducing since the safety of subsistence is replaced by transaction cost would encourage increased the insecurity of unstable markets and adverse farmer participation in competitive markets to price trends. meet the broader poverty alleviation objectives Dorward (1999 as cited by Makhura, (De Silva and Ratnadiwakara 2008). Sadoulet 2001) presents two views of assessing risk and de Janvry (1995) also claim that important in market participation. First, risk enters productivity gains can be achieved through market participation as an outcome of the promotion of greater specialization and market conditions. Households will allocate exchange by reducing transaction costs. their limited resources to subsistence and Heltberg and Tarp (2002) show that policies commercial production such that the disutility supporting the expansion of the number of of risk is balanced against the utility of market market participants are far more important than goods (Von Braun, De Haen, and Blanken those for stimulating farmers who are already in 1991 as cited by Makhura 2001). This implies the market to increase their supply. that the higher the risk the less inclined the The household specific factors that household will be to participate. Second, risk influence transaction costs, and thus household’s and transaction costs are interlinked in market participation decision, include aversion to participation. Uncertainty can be represented risk and uncertainty; social networks and by high transaction cost due to imperfect organizations; age, gender, and education; and knowledge of the different participants in the intrahousehold interaction (Pingali, Khawaja, market. The farmer needs to contract with and Meijer 2005). Such variables affect the cost partners to sell output and purchase inputs. In of information seeking, negotiating, monitoring, the absence of formal institutions that regulate and enforcement. such transactions, the farmer has to face costs Social networks and organizational to obtain information on these different agents, memberships may substantially reduce to contract, to monitor, and to enforce these transaction costs because they ensure agreements. cooperation among farmers in the use of scarce communal resources. 32 Agham C. Cuevas

Internal transaction costs or “social tension between gains from specialization and uncertainty” (Zaibet and Dunn 1998 as cited by corresponding increases in transaction costs Pingali, Khawaja, and Meijer 2005) occur within lead to enterprise diversification on small the dynamics of intrahousehold interaction. farms. Omamo (1998b), incorporating costly This may be a constraint in the decision-making exchange into an agricultural household model, process in extended households and may used a numerical non-separable version of inhibit market participation, which may then the model to show that seemingly inefficient require a premium in the farmer’s willingness cropping choices can be explained as rational to overcome these costs. Such a premium is food import substitution given high transport assumed to be proportionally related to the size cost in the product market. Obare, Omamo, and of the household; large or extended families Williams (2004) used data from a 1998 survey face higher negotiation costs. of farming households in Kenya to estimate the effects of poor rural road infrastructure on the Empirical Studies structure of smallholder farm production where simultaneous estimation of cost and input share There are a variety of empirical revealed rational responses by farmers to high implementations of how transaction costs access costs. affect household participation decisions in the Key, Sadoulet, and De Janvry (2000) used output and input markets. Goetz (1992) used a data on Mexican corn producers to estimate an selectivity model that endogenously switches empirical model that allows for separate tests households into alternative market participation of significance of both fixed and proportional states, correcting for bias caused by the transaction costs, revealing that both types exclusion of unobservable variables affecting matter. Holloway et al. (2000) applied a Tobit both discrete and continuous decisions. He model on marketable surplus to determine found out that market information increases how transaction costs affect participation in the probability of participation by sellers and the Ethiopian dairy market for small-scale, that access to cereal processing technology peri-urban producers. Vakis, Sadoulet, and increases quantities transacted by both sellers De Janvry (2003) estimated a market choice and buyers, conditional on participation. Staal, model as a function of variables that explain Delgado, and Nicholson (1997) looked into the transaction costs using a conditional logit role of cooperatives in reducing transaction model. These market choice equations are then costs in smallholder dairy farming in east used to control for selection in predicting the Africa, wherein they analyzed the determinants idiosyncratic prices that would be received on of producer prices received by a sample of dairy all markets and the idiosyncratic proportional producers. Results suggest that different levels of transaction costs that would be incurred to reach access to infrastructure, assets, and information all markets. The net of the two yields a measure explain why farmers accept widely different of effective farm-level prices that allows the prices for milk. Hobbs (1997) examined the estimation of a semi-structural conditional logit influence of transaction costs on the choice of of the market choice model. Results show that marketing channels in cattle marketing using the information on market price that farmers Tobit limited dependent variable analysis. receive from their neighbors reduces fixed Omamo (1998a) used an integrated household transaction costs equal to double the price model with endogenous transaction cost to received and is equal to four times the average illustrate how, even in the absence of risk, the Asian Journal of Agriculture and Development, Vol. 11, No. 1 33 transportation cost. Renkow, Hallstrom, and In the labor market, Lanzona and Evenson Karanja (2004) also developed a framework (1997) measured transaction costs and their of quantifying fixed transaction costs. Using effects on labor market participation and wage household survey data from a sample of 324 earnings. The observed differences between Kenyan maize farmers, household demand and buying and selling prices of rice across supply schedules and transaction costs were households were used to calculate transaction jointly estimated. Econometric results indicate costs indices for villages, which were then that the average ad valorem tax equivalent of incorporated into the standard labor market fixed transaction costs for households is 15 participation and Mincer wage equations. The percent. estimates indicate that transaction costs may Henning and Henningsen (2007) developed be a source of the income differentials between a farm household model that incorporates (a) the landed and the landless, (b) rural and various types of transaction costs as well as urban areas, and (c) males and females. To labor heterogeneity. Results show that non- analyze supervision activities reported in a proportional variable transaction costs and cross-section survey of rice farmers in the Bicol labor heterogeneity significantly influence region of the Philippines, Evenson, Khimi, household behavior. Alene et al. (2008) assessed and De Silva (2000) developed a model on the effects of transaction costs on smallholder the relationship between supervision intensity marketed surplus and input use in Kenya using and transaction costs. Results show a positive a selectivity model. Output supply and input effect of transaction costs on supervision demand responses to changes in transaction intensity. The analysis was then extended costs and price and non-price factors were to a farm-efficiency specification to test the estimated and decomposed into market entry proposition that supervision activities improve and intensity. Results show a negative impact farm efficiency. Results showed that transaction of transaction costs on market entry. costs have a negative direct effect on farm Most of the early empirical evidence efficiency. This effect, however, is partially of transaction costs in the input markets offset by increased supervision intensity, which involved credit provision. Looking into the enhances efficiency. transaction cost of borrowing from formal and Winter-Nelson and Temu (2002) analyzed informal sources in rural Bangladesh, Ahmed the roles of relative prices and transaction costs (1989) found that transaction costs resulting in explaining low use of chemical inputs among from formal loans are higher than those Tanzanian coffee growers. Results suggest that loans from informal lenders. De Guia-Abiad travel costs in input and output markets have (1993) examined the influence of borrowers’ distinct effects on input usage. Other studies transaction cost on credit in rural consider the influence of transaction cost on the financial markets in the Philippines. Results use of fertilizer (Strasberg et al. 1999; Zaibet show that transaction costs have a regressive and Dunn 1998) and mechanization (Zaibet and impact on borrowers, responding to transaction Dunn 1998 as cited by Makhura 2001). costs in the same manner and for the same reason that they respond to interest rates. 34 Agham C. Cuevas

SUMMARY AND POLICY IMPLICATIONS The literature reviewed in this paper is admittedly only a fraction of many that This paper surveys the literature on apply transaction costs to various issues in transaction cost in general and those that apply agriculture. However, the prevalence of the transaction cost to agriculture. It reviews the problem of access to markets in developing different definitions of the concept, highlighting countries justifies this survey’s narrow focus. efforts of various authors to organize and The dearth of empirical studies on transaction categorize the different definitions. It then costs and market access in the Philippine looks at the application of transaction cost context implies that this particular area in this to agriculture. The variety of issues that field of research is still a lush ground for the beleaguer agriculture make it a fertile breeding application of transaction cost theory. Research ground for the application and testing of on transaction costs can redound to the policy transaction cost theory. Most applications of arena and contribute greatly to the improvement the theory to agriculture fall under three broad of agricultural productivity. themes: contracts and property rights issues, In one of the few studies that tried to fill the organizations and institutional arrangements/ current research gaps in the Philippines, Cuevas institutions, and market exchange. (2012) used a simple market participation The discussion focused on the role of model with transaction costs to look into the transaction costs in exchange in agriculture, effects of different transaction cost variables on particularly in the context of a household’s farmers’ rice market participation as net sellers. decision to engage in market exchange, in Using Heckman’s (1979) two-step estimator, both input and output sides. Market failures the study found that transaction cost variables in agricultural markets are largely attributed such as income class of the municipality, access to high transaction costs caused by differential to informal credit, and years of education household characteristics. This presents a unique increased marketed supply through increased property of market failures in agriculture; they market participation and increased marketed are household specific rather than commodity supply among participants. specific. This survey of the literature finds These results highlight the possible a confluence of the different definitions. contributions that this kind of analysis can Coasian and Williamsonian definitions are provide to policy crafting. As the income class of used in interpreting fixed transaction costs the municipality proxies for physical and market while neoclassical and trade definitions (i.e., infrastructure and institutions, investments on the concept of the price band) characterize physical infrastructure, especially in the rural proportional transaction costs. The prominence areas, have the potential of bringing marginal of transport costs and the effect of distance farmers into the market and increasing the and isolation in many of the analyses point to marketed surplus of those who are already the influence of the new economic geography there. Better roads and communication that research stream. Measurement of transaction ease access to market centers would, therefore, cost as an ad valorem tax also references the increase productivity. trade concept of transaction costs. Asian Journal of Agriculture and Development, Vol. 11, No. 1 35

The significant effect of access to informal Anderson, J. and E. van Wincoop. 2004. “Trade costs.” credit (which reduces the search, information, Journal of Economic Literature 42:691-751. and negotiation costs in the marketing of Arrow, K. 1969. “The Organization of Economic output due to the interlinkage of informal credit Activity: Issues Pertinent to the Choice of Market Versus Non-Market Allocation.” In The provision with marketing arrangements) on Analysis and Evaluation of Public Expenditures: the choice and level of market participation The PBB-System. Joint Economic Committee, provides a policy avenue that can greatly 91st Congress, 1st Session, Vol. 1. Washington DC: Government Printing Office. increase productivity in the rice sector. Policies that reduce barriers to entry in trading and Barzel, Y. 1982. “Measurement Cost and the informal lending may offer high returns to Organization of Markets.” Journal of 25: 27–48. public resources. Improvements in human capital through ———. 1997. Economic Analysis of Property Rights, 2nd ed. Cambridge: Cambridge University Press. education, on the other hand, not only increase productivity but also lower transaction costs Benham, Alexandra, and Lee Benham. 2001. “The Costs of Exchange.” Institute through increased ability to obtain market Working Paper 1. Accessed March 1, 2008. information. Thus, more in http://www.coase.org/workingpapers/wp-1.pdf education in the rural areas can greatly improve Buduru, B., and M. Brem. 2007. “Transaction Costs, agricultural productivity. Strategic Interaction, and Farm Restructuring.” 37 (1): 67–80. Bussolo, M., and J. Whalley. 2002. “Globalisation in REFERENCES Developing Countries: The Role of Transaction Costs in Explaining Economic Performance in India.” Project paper. London, UK: Department Ahmed, Z.U. 1989. “Effective Costs of Rural Loans in of International Development. Bangladesh.” World Development 17 (3): 357– 363. Chobanov, G., H. Egbert, and A. Giuredzheklieva 2007. “The Rise of the Transaction Sector in the Alchian, A., and H. Demsetz. 1972. “Production, Bulgarian Economy.” Comparative Economic Information Costs, and Economic Organization.” Studies 49 (4): 683–698. American Economic Review 72: 777–95. Coase, Ronald H. 1937. “.” Alene, A., V.M. Manyong, H.D. Omanya, H.D. Economica 4 (16): 386–405. Mignouna, M. Bokanga, and G. Odhiambo. 2008. “Smallholder Market Participation under ———. 1960. “The Problem of .” Journal Transaction Costs: Maize Supply and Fertilizer of Law and Economics 3: 1–44. Demand in Kenya.” Food Policy 33 (4): 318– 328. Cuevas, A.C. 2012. “An Analysis of the Effects of Transaction Costs on Farmers’ Market Allen, D. 1991. “What are Transaction Costs?” Participation in the Rice Sector of the Research in Law and Economics 14 (0): 1–18. Philippines.” PhD diss., University of the Philippines Diliman. ———. 2000. “Transaction Costs.” In Encyclopedia of Law and Economics, edited by B. Bouckaert De Guia-Abiad. V. 1993. “Borrower Transaction and G. de Geest, 893–926. Cheltenham: Edward Cost and Credit Rationing in Rural Financial Elgar. Markets: The Philippine Case.” The Developing Economies 31 (2): 208–219. Allen, D., and D. Lueck. 1998. “The Nature of the Farm.” Journal of Law Economics 41 (2): 343– De Janvry, A., and E. Sadoulet. 2006. “Progress in 386. the Modeling of Rural Households’ Behavior under Market Failures.” Poverty, Inequality and Alston, L.J., S.K. Datta, and J.B. Nugent. 1984. Development: 155–181. “Tenancy Choice in a Competitive Framework with Transaction Costs.” Journal of 92 (6): 1121–1133. 36 Agham C. Cuevas

De Janvry, A., M. Fafchamps, and E. Sadoulet. Economic Theory: The Contribution of the New 1991. “Peasant Household Behavior with Institutional Economics. Michigan: University Missing Markets: Some Paradoxes Explained.” of Michigan Press. Economics Journal 101 (409): 1400–1417. Goetz, S.J. 1992. “A Selectivity Model of Household den Butter, F., and H. Mosch. 2003. “Trade, Trust and Food Marketing Behavior in Sub-Saharan Transaction Cost.” Tinbergen Institute Discussion Africa.” American Journal of Agricultural Paper 03-082/3. Amsterdam: Tinbergen Institute. Economics 74 (2): 444–452. De Silva, H., and D. Ratnadiwakara. 2008. “Using Hardt, L. 2006. “Transaction Cost Economics as a ICT to Reduce Transaction Costs in Agriculture Three Dimensional Externally Driven Research through Better Communication: A Case-study Program.” Economic Studies 1–2:7-31. from Sri Lanka. Accessed on March 14, 2009. http://lirneasia.net/wp-content/uploads/2008/11/ ———. 2009. “The History of Transaction Cost transactioncosts.pdf Economics and its Recent Developments.” Erasmus Journal for Dixit, A. 1996. The Making of : 2 (1): 29–31. A Transaction-Cost Politics Perspective. Cambridge, MA: MIT Press. Hayes, D. 2000. “Transaction-cost Economics and the Evolving Structure of Agricultural Production.” Dorward, A. 1999. “A Risk Programming Approach for In E-Commerce in Agribusiness, edited by T.G. Analysing Contractual Choice in the Presence Schmitz, C.B. Moss, A. Schmitz, A. Kagan, and of Transaction Costs.” European Review of B. Bobcock. Florida: Florida Science Source, Agricultural Economics 26 (4): 481–492. Inc. Eggertsson, T. 1990. “Economic Behavior and Heckman, J. 1979. “Sample Selection Bias as a Institutions.” In Cambridge Survey of Economic Specification Error.”Econometrica 47: 153–161. Literature. Cambridge: Cambridge University Press. Heltberg R., and F. Tarp. 2002. “Agricultural Supply Response and Poverty in Mozambique.” Food Engelbrecht, H. 2004. “The Transaction Sector, the Policy 27 (2): 103–124. Information Economy, and in New Zealand: Taking Hazledine Seriously.” New Henning C., and A. Henningsen. 2007. Econometric Zealand Economics Papers 38 (1): 87–99. Estimation of Farm Household Decisions in the Presence of Labor Markets Imperfection. Evenson, R., A. Kimhi, and S. De Silva. 2000. A paper presented at the Nordic Econometric “Supervision and Transaction Costs: Evidence Meeting, Tartu, Estonia, May 24–26. from Rice Farms in Bicol, the Philippines.” Center Discussion Paper No. 814. New Haven, Hicks, J. 1935. “A Suggestion for Simplifying the Connecticut: Economic Growth Center, Yale Theory of Money.” Economica 2 (5): 1–19. University. Hobbs, J. 1995. “Evolving Marketing Channels for Beef Foley, D. 1970. “ with Costly and Lamb in the United Kingdom – A Transaction Marketing.” Journal of Economic Theory 2 (3): Cost Approach.” Journal of International Food 276–291. and Agribusiness Marketing 7 (4): 15–39. Frisvold, G. 2005. Transaction Costs and Institutional ———. 1997. “Measuring the Importance of Innovations in Agricultural Labor Contracts. Transaction Costs in Cattle Marketing.” Paper presented at the American Agricultural American Journal of Agricultural Economics 79 Economics Association Annual Meeting, (4): 1083–1095. Providence, Rhode Island, July 24–27. Holloway, G., C. Nicolson, C. Delgado, S. Staal, and Fuentes, G. 1998. “Middlemen and Agents in S. Ehui. 2000. “Agro-industrialization through the of Paddy: Institutional Institutional Innovation: Transaction Costs, Arrangements from the Rural Philippines.” Cooperatives and Milk-market Development Journal of Asian Economics 9 (2): 307–331. in the East-African Highlands.” Agricultural Economics 23 (3): 279–288. Furubotn, F., and R. Richter. 2005. Institutions and Asian Journal of Agriculture and Development, Vol. 11, No. 1 37

Holzhey, D. 2003. Transaction Costs and Patterns of Masten, S. 2000. “Transaction-cost Economics and International Trade. Goettingen: Department of the Organization of Agricultural Transactions.” Economics, University of Goettingen. 9: 173–195. Key, N., E. Sadoulet, and A. de Janvry. 2000. Naseer, F., R. Evenson, and S. De Silva. 2007. Social “Transaction Cost and Agricultural Household Capital, Efficiency and Transaction Costs in the Supply Response.” American Journal of Philippines. Unpublished manuscript. Agricultural Economics 82 (1): 245–259. Niehans, J. 1969. “Money in a Static Theory of Optimal Klaes, M. 2000a. “The History of the Concept of Payments Arrangements.” Journal of Money, Transaction Costs: Neglected Aspects.” Journal Credit, and Banking 1 (4): 706–726. of the History of Economic Thought 22 (2): 191– 216. ———. 1987. “Transaction Costs.” In The New Palgrave: A Dictionary of Economics, vol. 4, ———. 2000b. “The Birth of the Concept of Transaction edited by John Eatwell, Murray Milgate, and Costs.” Industrial and Corporate Change 9 (4): Peter Newman. London: Macmillan. 567–593. North, D. 1964. “Government and the Cost of Exchange ———. 2008. “History of Transaction Costs.” In The in History.” Journal of Economic History 44 (2): New Palgrave Dictionary of Economics, 2nd ed., 255–264. edited by Steven N. Durlauf and Lawrence E. Blume. New York: Palgrave Macmillan. ———. 1991. “Institutions.” Journal of Economic Perspectives 5(1): 97–112. Krugman, P. 1980. “Scale Economies, Product Differentiation, and the Pattern of Trade.” ———. 1994. “Economic Performance through Time.” American Economic Review 70: 950–959. American Economic Review 84 (3): 359–368. Lanzona, L., and R. Evenson. 1997. “The Effects of Obare, G., S. Omamo, and A.Williams. 2004. Transaction Costs on Labor Market Participation “Smallholder Production Structure and Rural and Earnings: Evidence from Rural Philippine Roads in Africa: The Case of Nakuru District, Markets.” Center Discussion Paper No. 790, Kenya.” Agricultural Economics 28 (3): 245– New Haven, Connecticut: Economic Growth 254. Center, Yale University. Omamo, S. 1998a. “Transport Cost and Smallholder Lema, D. 2006. “Contracts, Transaction Costs and Cropping Choices: An Application to Saiyaz Agricultural Production in the Pampas.” Paper District, Kenya.” American Journal of presented at the 2006 Annual Meeting of Agricultural Economics 80 (1): 116–123. the International Association of Agricultural ———. 1998b. “Farm–to–market Transaction Costs , Queensland, Australia, August 12– and Specialization in Small-scale Agriculture: 18 2006. Explorations with a Non-separable Household Macher, J., and B. Richman. 2008. “Transaction Model.” Journal of Development Studies 35 (2): Cost Economics: An Assessment of Empirical 152–163. Research in the Social Sciences.” Business and Pingali, P., Y. Khawaja, and M. Meijer. 2005. Politics 10 (1): 1–63. “Commercializing Small Farms: Reducing Makhura, M. 2001. “Overcoming Transaction Costs Transaction Costs.” ESA Working Paper No. Barriers to Market Participation of Smallholder 05-08. Rome, Italy: Food and Agriculture Farmers in the Northern Province of South Organization of the United Nations. Africa.” PhD diss., University of Pretoria. Purcell, W., and W. Hudson. 2004. “Risk Sharing Makhura, M., J. Kirsten, and C. Delgado. 2001. and Compensation Guides for Managers and “Transaction Costs and Smallholder Participation Members of Vertical Beef Alliances.” Review of in the Maize Market in the Northern Province Agricultural Economics 25 (1): 44–65. of South Africa.” Paper presented at the Renkow, M., D. Hallstrom, and D. Karanja. 2004. Seventh Eastern and Southern Africa Regional “Rural Infrastructure, Transactions Costs and Conference, Nairobi, Kenya, February 5–11. Market Participation in Kenya.” Journal of Marschak, J. 1950. “The Rationale for the Demand 73 (1): 349–367. for Money and of “Money Illusion.” Metroeconomica 2 (2): 71–100. 38 Agham C. Cuevas

Rindfleisch, A., and J. Heide. 1997. “Transaction Cost Von Braun, J., H. De Haen, and J. Blanken. 1991. Analysis: Past, Present, and Future Applications.” “Commercialization of Agriculture under Journal of Marketing 61 (4): 30–54. Population Pressure: Effects on Production, Consumption, and Nutrition in Rwanda”. Sadoulet, E., and A. de Janvry. 1995. Quantitative Research Report 85. Washington DC: Development Policy Analysis. Baltimore: Johns International Food Policy Research Institute. Hopkins University Press. Wallis, J. and D. North. 1986. “Measuring the Samuelson, P. 1954. “The Transfer Problem and Transaction Sector in the American Economy, Transport Costs, II: Analysis of Effects of Trade 1870–1970.” In Long Term Factors in American Impediments.” The Economic Journal 64: 264– Economic Growth, edited by S.L. Engerman and 289. R. Gallman, 95–161. Chicago: University of de Scitovsky, T. 1940. “A Study of Interest and Capital.” Chicago Press. Economica 7: 293–317. Wallis, J., and D. North. 1988. “Should Transaction Staal, S., C. Delgado, and C. Nicholson. 1997. Costs be Subtracted from Gross National “Smallholder Dairying under Transaction Costs Product?” Journal of Economic History 48 (3): in East Africa.” World Development 25 (5): 779– 651–654. 794. Williamson, O.E. 1979. “Transaction Cost Economics: Stavins R. 1995. “Transaction Costs and Tradable the Governance of Contractual Relations.” Permit.” Journal of Journal of Law and Economics 22: 233–261. and Management 29 (2): 133–148. ———. 1998. “Transaction Cost Economics: How It Stigler, G. 1961. “The Economics of Information.” Works; Where It is Headed.” De 146 Journal of Political Economy 59: 213–225. (1): 23-58. Strasberg, P., T. Jayne, T. Yamano, J. Nyoro, D. Karanja, ———. 2000: “The New Institutional Economics: and J. Straus. 1999. “Effects of Agricultural Taking Stock, Looking Ahead.” Journal of Commercialisation on Food Crop Input Use Economic Literature 38 (3): 595–613. and Productivity in Kenya. MSU International ———. 2005. “Transaction Cost Economics.” In Development Working Paper No. 71. East Handbook of New Institutional Economics, Lansing, Michigan: Department of Agricultural edited by C. Menard and M.M. Shirley, 41–65. Economics, Michigan State University. Netherlands: Springer. Vakis, R. 2002. “The Impact of Market Failures on Winter-Nelson, A., and A. Temu. 2002. “Institutional Household Behavior: Explaining Labor Market Adjustment and Transaction Costs: Product and Segmentation, Technology Adoption Patterns Inputs Markets in the Tanzanian Coffee System.” and Transaction Costs in Rural Peru. PhD diss., World Development 30 (4): 561–574. University of California-Berkely. ———. 2005. “Impacts of Prices and Transactions Vakis, R., E. Sadoulet, and A. De Janvry. 2003. Costs on Input Usage in a Liberalizing Economy: “Measuring Transactions Costs from Observed Evidence from Tanzanian Coffee Growers.” Behavior: Market Choices in Peru.” Accessed Agricultural Economics 33 (3): 243–253. July 10, 2009, http://are.berkeley.edu/~rvakis/ tc.pdf Zaibet, L.T., and E.G. Dunn. 1998. “Land Tenure, Farm Size, and Rural Market Participation in Valintinov, V., and J. Curtiss. 2005. “Towards a Developing Countries: The Case of the Tunisia Transaction Cost Theory of Organizational Olive Sector.” Economic Development and Change in Transitional Agriculture.” Eastern Cultural Change 46 (4): 831–848. European Economics 43 (5): 25–45.