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The role of intermediaries in enhancing market efficiency in the Ethiopian grain market
Author(s) -
GabreMadhin Eleni Z.
Publication year - 2001
Publication title -
agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.29
H-Index - 82
eISSN - 1574-0862
pISSN - 0169-5150
DOI - 10.1111/j.1574-0862.2001.tb00211.x
Subject(s) - intermediary , welfare , externality , search cost , institution , microeconomics , economics , distribution (mathematics) , industrial organization , business , public economics , market economy , finance , mathematics , mathematical analysis , political science , law
This paper investigates the impact of the institution of brokerage on the optimal search behaviour and the welfare gains and losses of traders in the Ethiopian grain market. Without brokers, the privately optimal search diverges from the socially optimal search due to the positive spill‐over of individual search behaviour. Numerical analysis using the actual distribution of search costs and search efficiency obtained from primary data collected in Ethiopia reveals that this externality is partially internalised by the presence of brokers and that total welfare increases significantly due to a more efficient allocation of search effort.