Transaction Costs and Market Institutions: Grain Brokers in Ethiopia
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This paper examines the effect of transaction costs of search on the institution of
grain brokers in Ethiopia. Primary data are used to derive traders’ shadow
opportunity costs of labor and of capital from IV estimation of net profits. A twostep
Tobit model is used in which traders first choose where to trade and then
choose whether to use a broker to search on their behalf. The results confirm
traders’ individual rationality in choosing brokerage, showing high transaction
costs are linked to increased broker use while high social capital reduces broker
use.