Abstract
In sub-Saharan Africa, transaction costs are believed to be the most significant barrier that prevents smallholders and farmers from gaining access to markets and productive assets. In this study, we explore the impact of social capital on millet prices for three contrasted years in Senegal. Social capital is approximated using a unique data set on mobile phone communications between 9 million people allowing to simulate the business network between economic agents. Our approach is a spatial equilibrium model that integrates a diversified set of data. Local supply and demand were respectively derived from remotely sensed imagery and population density maps. The road network was used to establish market catchment areas, and transportation costs were derived from distances between markets. Results demonstrate that accounting for the social capital in the transaction costs explained 1–9% of the price variance depending on the year. The year-specific effect remains challenging to assess but could be related to a strengthening of risk aversion following a poor harvest.
Highlights
To evaluate the effect of social capital on millet prices and market functioning, we focused on intermarket trades as traders are the economic agents most exposed to the effect of transaction costs (Fafchamps and Minten, 2001)
We showed that taking into account the impact of social capital on transaction costs explained between 1 and 9 percent of the price variance depending on the year
We demonstrated the effect of social capital on millet prices in Senegal
Summary
We explored the effect of transaction costs generated by social capital on millet retail prices in Senegalese food markets for three contrasted years. To evaluate the effect of social capital on millet prices and market functioning, we focused on intermarket trades as traders are the economic agents most exposed to the effect of transaction costs (Fafchamps and Minten, 2001). We adopted an original approach in the form of a spatial equilibrium model which enabled us to compare different market functioning scenarios, i.e., with and without transaction costs accounting for social capital. For each pair of markets ij and depending on the level of social capital, the transaction cost was either null (sij = 1) or infinite (sij = 0) It followed that the arbitrage condition became Eq (3): pi. The accuracy of ropt and sopt estimates was assessed by investigate the performance of the optimal model for values of r and sclose to ropt and sopt
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