Variable Transaction Costs Research Articles

Transaction costs and marketing decision: a case study of smallholder tomato farmers in Makurdi, Nigeria

This study examined the impact of transaction costs and other institutional and socio-economic factors on smallholder tomato farmers marketing decision in Makurdi Local Government Area, Benue State, Nigeria. The study used a survey data from 165 randomly selected farm households. Using a Logit model, the study found that the probability of market participation is significantly affected by transaction cost variables (namely access to market information, market distance and transport cost). Education and dependency ratio also had significant effect on decision to sell in the market. While access to market information and education significantly increase the probability of tomato farmers’ participation in the market, transport cost, market distance and dependency ratio significantly decrease the probability. The study stresses the need for government intervention by means of providing the necessary infrastructures that will help to reduce transaction costs and thus increase farmers’ participation in the market. Also policies to provide adequate and timely information about the market situations as well as polices to enhance access to education are advocated.

Plural Governance: A Modified Transaction Cost Model

Plural governance is a form of governance where a firm both makes and buys similar goods or services. Despite a widespread use of plural governance there are no transaction cost models of how plural governance affects performance. This paper reviews the literature about plural forms and proposes a model relating transaction cost and resource-based variables to the cost of the plural form. The model is then used to analyze when the plural form is efficient compared to alternative governance structures. We also use the model to discuss the strength of three plural form synergies.

Intraday Anomalies and Market Efficiency: A Trading Robot Analysis

One of the leading criticisms of the Efficient Market Hypothesis (EMH) is the presence of so-called “anomalies”, i.e. empirical evidence of abnormal behaviour of asset prices which is inconsistent with market efficiency. However, most studies do not take into account transaction costs. Their existence implies that in fact traders might not be able to make abnormal profits. This paper examines whether or not anomalies such as intraday or time of the day effects give rise to exploitable profit opportunities by replicating the actions of traders. Specifically, the analysis is based on a trading robot which simulates their behaviour, and incorporates variable transaction costs (spreads). The results suggest that trading strategies aimed at exploiting daily patterns do not generate extra profits. Further, there are no significant differences between sub-periods (2005-2006 – “normal” , 2007- 2009 – “crisis” , 2010-2011 – “post-crisis).

CENTRALIZATION OF DECISION MAKING AUTHORITY IN INTERORGANIZATIONAL NETWORKS: EVIDENCE FROM THE AUSTRIAN AUTOMOTIVE INDUSTRY

The aim of this study is to examine the impact of p roperty rights and transaction cost variables (i.e. , intangible knowledge assets, relationship-specific investments and environmental uncertainty) on centralization o f decision making authority in the automotive networks. The th eoretical view is based on the property rights theo ry and transaction cost theory that offer a complementary perspective to the agency-theoretical explanation. The data were collected from a field survey in the Austrian automotive networks. The findings show that central ization of decision making authority in the automotive network s is related to the automaker’s and supplier’s inta ngible knowledge assets and relationship-specific investme nts as well as environmental uncertainty.

Entrepreneurship, Transaction Costs and Cultural Background

This paper aims to explore the connections between transaction costs and economic institutions on the one hand, and the group of variables describing cultural background on the other. By improving transaction characteristics and economic institutions, we can increase the entrepreneurship rates of the society. The paper tries to explore this relationship. Transaction cost and institutional variables are analysed using a principal component analysis and OLS. The results confirm the original working hypothesis of the existence of a relationship between transaction costs and culture. The component of cultural characteristics having a pro-growth orientation reduces transaction costs and enhances economic institutions, while the component of cultural characteristics that are reflected in the pro-social characteristics of cultural background increase it. A positive relationship between entrepreneurial variable and the transaction and economic institutions is revealed.

An Extended Transaction Cost Model of Decision Rights Allocation in Franchising: The Moderating Role of Trust

This study develops and tests an extended transaction cost model to explain the structure of decision rights in franchising. Results show that the inclusion of trust in the transaction cost model supplements the transaction cost explanation of the allocation of decision rights in franchising. On the basis of the data from the German franchise sector, we found that environmental uncertainty has a negative effect on the allocation of decision rights to franchisees because the franchisor exercises more control over local outlet decisions when the local market environment is highly uncertain. Contrary to the traditional transaction cost view, we found that behavioral uncertainty has a positive effect on the allocation of decision rights to franchisees. This result implies that franchisors are more likely to delegate decision rights to franchisees when they encounter difficulties in measuring franchisees' performance and controlling their behavior. Finally, trust has a moderating effect on the relationship between transaction cost variables and franchisor's propensity to delegate decision rights to franchisees. Copyright © 2013 John Wiley & Sons, Ltd.

Analysis of Technical Efficiency and Determinants of Acha (Digitaria exilis) Production in Kaduna State, Nigeria

The study aimed at analyzing the technical efficiency of acha production using structured questionnaire administered to 200 randomly selected acha farmers in Kaduna State. The data were subject to analysis using the stochastic frontier production function and the gross margin analysis in order to achieve the set objectives. The scale coefficient (1.16) indicates that the farmers are operating at increasing returns to scale, that is, stage one of the production phase. The technical efficiency score of each respondent revealed that the most efficient farmer operated at 96% efficiency, the least efficient farmer was found to operate at 53% efficiency level, while the most frequently occurring efficiency score was 81%, indicating that farmers still have room to increase the efficiency in their farming activities as about 19% efficiency gap from the optimum (100%) is yet to be attained by all farmers. The technical inefficiency model revealed that the farmers’ selected socio economic characteristics (production experience, contact with extension agent, household size, level of education and off farm income) and transaction cost variables (harvesting cost, processing cost, storage cost, transportation cost, farm distance) contributed immensely to the technical efficiency of acha farmers, as the variable were significant (P=.01). Acha production is profitable in the study area. Important constraints encountered by acha farmers include high cost of labour, inadequate capital and high

¿Cómo controlan los franquiciadores españoles a sus franquiciados?

In franchises, a bad performance by a franchisee has a strong negative impact over the whole chain, explaining why the management control systems (MCS) are key for the running and success of the franchise. Based on the distinction among outcome, behaviour and social controls (Ouchi, 1979) and the diagnostic and interactive styles of control use (Simons, 1995), this paper analyzes the prevailing pattern in the design and use of MCSs in franchises from a Transaction Cost Economics perspective.Through a domestic survey, data from 240 franchisors located in Spain were obtained, which was subsequently analysed using structural equations. Results show that social controls and interactive use are the trending pattern in management control in Spanish franchisors, pointing out a relational tendency in the franchise, oriented to value creation and mutual dialogue. The inclusion of transaction cost variables reveals a high influence of uncertainty in the franchisor's control. However, variables of this theory, such as specific assets investment and frequency of the relationship, have a secondary role in MCS design and use.

Institutional, cultural and transaction cost influences on entry mode choice and performance

In this study, we examine foreign market entry mode choice and firm performance for a sample of European Union firms. Examining both financial and non-financial performance measures, we attempt to determine if firms that select their entry mode based on transaction cost, institutional context, and cultural context variables perform better than firms that make other mode choices. We found that mode choice did matter. Firms whose mode choice could be predicted by the extended transaction cost model performed significantly better, on both financial and non-financial measures, than did firms whose mode choice could not be predicted by the extended transaction cost model. Implications for future research are discussed.

Index tracking with fixed and variable transaction costs

Index tracking is a form of passive portfolio (fund) management that attempts to mirror the performance of a specific index and generate returns that are equal to those of the index, but without purchasing all of the stocks that make up the index. We present two mixed-integer linear programming formulations of this problem. In particular we explicitly consider both fixed and variable transaction costs. Computational results are presented for data sets drawn from major world markets.

Incorporating asset growth potential and bear market safety switches in international portfolio decisions

In the paper the impact of the growth potential index (GPI) of risky assets and bear market safety switches in portfolio decisions is discussed. A recursive formulation based on out-of-sample time series predictions of the underlying assets is applied in the empirical testing. It is demonstrated that the multiple representations framework provides useful forecasts for portfolio management. A number of alternative forecasting methods are included. The best forecast for each individual asset serves as input to the portfolio optimization module. The recursive time series estimation-optimization system is embedded in the genetic hybrid algorithm to improve the prediction accuracy. In contrast to single-period equilibrium models, the mathematical program recognizes cardinality constraints required in institutional banking, the opportunity cost, fixed and variable transactions costs, liquidity, the risk profile of the investor and the entry/exit time for risky investments. The database consists of the daily market indexes of 12 global stock exchanges in local and Euro converted currencies based on the daily European interbank exchange rates. Time series regressions indicate that GPI-constrained recursions outperform the buy-and-hold strategy. The downside risk of the portfolio is effectively controlled by crisp or fuzzy distress indicators to switch between cash or low-risk interest bearing instruments and risky assets.

Internal or External Production and Satisfaction with the Chosen Sourcing in Danish Municipalities: Different Theoretical Explanations

There is a large literature on both why local governments and public organisations choose internal or external production of services and what explains the performance of internal and external production. A range of different theories have been used to answer these questions. However, these studies show mixed results. In this study we investigate four theories: transaction cost economics, neoclassical economics, the resource-based view of strategy and institutional theory. Can these theories explain whether local governments choose internal or external production and can they explain the satisfaction with the internal and external production? Do the same variables explain the choice and the satisfaction? Based on a survey of four different service areas in Danish municipalities, it is shown that different theoretical variables explain the choice and satisfaction with the sourcing mode. Internal expertise is strongly related to the choice of internal or external production, whereas most transaction cost variables are unrelated to this choice. However, other variables such as supplier expertise and technological uncertainty are related to satisfaction with service production. The results corroborate the view that different variables are needed for explaining the performance of suppliers and the choice between internal and external suppliers. Furthermore, the results suggest that the study of local governments' sourcing may benefit from integrating theories focusing on internal expertise and markets. Studies may also benefit from integrating economic theories, which assume rationality, with institutional theory emphasising more unreflective and socially determined behaviour.

Hedging with options and cardinality constraints in multi‐period portfolio management systems

PurposeThe purpose of this paper is to study the effects of hedging with options and cardinality constraints in multi‐period portfolio management systems.Design/methodology/approachThe paper focuses on a recursive multi‐period portfolio management formulation (SHAREX) subject to hedging with cardinality constraints and options. The problem formulation is tested with observed and simulated data.FindingsThe yield of the multi‐period cardinality constrained option hedging framework under integer‐valued transactions and fixed and variable transactions costs exceeds the riskless return predicted by the Black‐Scholes model in equilibrium.Originality/valueThe paper demonstrates that the multiple representations framework constructed to generate optimal predictions provides accurate forecasts with obvious value for portfolio management.

Mean-variance portfolio rebalancing with transaction costs and funding changes

Investment portfolios should be rebalanced to take account of changing market conditions and changes in funding. Standard mean-variance (MV) portfolio selection methods are not appropriate for portfolio rebalancing, as the initial portfolio, change in funding and transaction costs are not considered. A quadratic mixed integer programming portfolio rebalancing model, which takes account of these factors is developed in this paper. The transaction costs in this portfolio rebalancing model are composed of fixed charges and variable costs, including the market impact costs associated with large market trades of individual securities, where these variable transaction costs are assumed to be non-linear functions of traded value. The use of this model is demonstrated and it is shown that when initial portfolio, funding changes and transaction costs are taken into account in portfolio construction and rebalancing, MV efficient portfolios that include risk-free lending do not have the structure expected from portfolio theory.

Assisting Vietnamese Mango Farmers to Capture Greater Benefits through Improved Supply Chain Management

In the developing countries, traditional supply chains for fresh produce are giving way to new supermarket-led supply chains. The rapid transformation in the fruit and vegetable sector is due to the meteoric rise of supermarkets, hypermarkets, superstores, neighbourhood stores, convenience stores, and discount stores, which are impacting on smallholder farmers. This change is also impacting on both upstream and downstream market intermediaries through the demand for safe, high-quality produce that has been produced in a sustainable manner. Problems with procurement in traditional supply chains include few product standards, inconsistent supply, highly variable transaction costs, and limited market information. Supermarkets are now setting new procurement practices and supply systems which focus on reducing costs and improving quality to enable them to sell at lower prices. This will allow them to win over consumers and to obtain a larger market share. However, the ability of smallholder farmers, collector agents, and wholesalers in the Mekong Delta to meet safe food levels and the quality demands of domestic and overseas supermarkets can only be obtained through improving their production and supply chain practices. The implementation of new production and postharvest practices and the modernization of these supply chains may preclude many smallholder farmers from participating. Smallholder farmers must develop risk minimization strategies, such as forming collaborative marketing groups, implementing new crop management and production systems, improving the packaging, and creating more efficient transport methods and handling practices to provide a safe, competitively priced, high-quality product. Understanding the supply chain and where to intervene are essential if farmers and all supply chain participants are to benefit. In this paper, we describe mango supply chains in the Mekong Delta, provide empirical data collected from surveys, and highlight improvements smallholder farmers have been making to achieve greater benefits.

Choosing the right multiple channel system to minimize transaction costs

This paper proposes that firms can use a transaction cost approach to make multiple channel system design related decisions. The author differentiates between two types of multiple channel systems and hypothesizes that transaction asset specificity, behavioral uncertainty and environmental uncertainty lead manufacturers to adopt either a dual channel system or a multiple independent channel system. Furthermore, the author proposes that when all three transaction cost variables match with the type of multiple channel system used, firms can minimize their transaction costs and eventually increase their channel system performance in terms of contribution to firm profitability. The author tests the hypotheses with survey data collected from 229 firms. The results support that the fit between the type of multiple channel mix and the three transaction-cost theory variables results in lower transaction costs and higher contribution to profit. The author presents theoretical and managerial implications.

Antecedents of contractual completeness: the case of tour operator-hotel allotment contracts

This study aims to explain completeness of contracts by using and extending the transaction cost theory. First, we investigate the impact of transaction characteristics (i.e. environmental uncertainty and specific investments) on contractual completeness. In addition the study extends the transaction cost view by investigating the moderating effect of trust on the relationship between transaction characteristics and contractual completeness within the context of transaction cost theory. We offer a completeness scale consisting of contingency planning in hotel allotment contracts. Our results from Turkish tourism industry support the transaction cost hypotheses and the moderating effect of trust on the relationships between transaction cost variables and completeness of contracts. This study extends the transaction cost literature on contractual completeness by showing that trust functions as moderator between the transaction cost variables and contractual completeness.

Optimal Securitization of Credit Portfolios via Impulse Control

We study the optimal loan securitization policy of a commercial bank which is mainly engaged in lending activities. For this we propose a stylized dynamic model which contains the main features affecting the securitization decision. In line with reality we assume that there are non-negligible fixed and variable transaction costs associated with each securitization. The fixed transaction costs lead to a formulation of the optimization problem in an impulse control framework. We prove viscosity solution existence and uniqueness for the quasi-variational inequality associated with this impulse control problem. Iterated optimal stopping is used to find a numerical solution of this PDE, and numerical examples are discussed.

Optimal securitization of credit portfolios via impulse control

We study the optimal loan securitization policy of a commercial bank which is mainly engaged in lending activities. For this we propose a stylized dynamic model which contains the main features affecting the securitization decision. In line with reality we assume that there are non-negligible fixed and variable transaction costs associated with each securitization. The fixed transaction costs lead to a formulation of the optimization problem in an impulse control framework. We prove viscosity solution existence and uniqueness for the quasi-variational inequality associated with this impulse control problem. Iterated optimal stopping is used to find a numerical solution of this PDE, and numerical examples are discussed.

Turnover, account value and diversification of real traders: evidence of collective portfolio optimizing behavior

Despite the availability of very detailed data on financial markets, agent-based modeling is hindered by the lack of information about real trader behavior. This makes it impossible to validate agent-based models, which are thus reverse-engineering attempts. This work is a contribution towards building a set of stylized facts about the traders themselves. Using the client database of Swissquote Bank SA, the largest online Swiss broker, we find empirical relationships between turnover, account values and the number of assets in which a trader is invested. A theory based on simple mean-variance portfolio optimization that crucially includes variable transaction costs is able to reproduce faithfully the observed behaviors. We finally argue that our results bring to light the collective ability of a population to construct a mean-variance portfolio that takes into account the structure of transaction costs.