Abstract
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.
Published Version
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