Middlemen and agents in the procurement of paddy: Institutional arrangements from the rural Philippines

Abstract

Using transaction cost economics (TCE) as the framework of analysis, this article examines some of the specific institutional arrangements that arise when small, village-based paddy traders and local farmers are used as middlemen and commission agents, respectively, to procure paddy supplies for large rice millers, traders, and retailers/wholesalers in the rural Philippines. I find that the institutional arrangements examined in this article generally conform to the propositions set forth in the TCE literature. That is, as trnsactions involve specific investments in capital or knowledge, the governance structure will tend to be specific and bilateral, while more standard transactions are best governed by the market. In addition, this article also discusses why one form of contracting mode may be preferred to alternative contracting modes.