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The Effects of Transaction Costs, Power and Risk on Contractual Arrangements: A Conceptual Framework for Quantitative Analysis
Author(s) -
Dorward Andrew
Publication year - 2001
Publication title -
journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.157
H-Index - 61
eISSN - 1477-9552
pISSN - 0021-857X
DOI - 10.1111/j.1477-9552.2001.tb00925.x
Subject(s) - transaction cost , economics , industrial organization , equity (law) , microeconomics , database transaction , conceptual framework , public economics , quantitative analysis (chemistry) , commodity , new institutional economics , business , market economy , programming language , philosophy , chemistry , epistemology , chromatography , political science , computer science , law
Increased reliance on commercial traders in liberalised agricultural markets poses questions about the nature of contractual relations between traders and farmers; about welfare, efficiency and equity characteristics of these relations; and about conditions necessary for traders to engage in these markets. A new institutional economics analysis seeks to understand the institutions that affect transaction costs and risks for each party, and power relations between them. Transaction cost analysis has not, however, developed a unifying conceptual or quantitative framework to integrate these issues. This paper develops a methodology for modelling negotiated choice of contractual arrangements in buyer/seller relationships, taking account of the socioeconomic characteristics of each party, economic and technical characteristics of the commodity, and the institutional environment. The model is setup as a non‐linear programming problem. The approach provides a framework for the application of transaction cost economics to quantitative empirical study of markets, to individual firms' supply chain decisions, and to the analysis of policy interventions in markets.