Transaction Costs of Exchange in Agriculture: A Survey

The concept of transaction cost has been around for more than 75 years. It has been used to explain every economic phenomenon that does not fit with standard neoclassical predictions. It has been applied to so many fields, its definition varying with every application. This paper surveys the literature on transaction costs in general, as well as those that apply transaction costs to agriculture. It focuses on the role of transaction costs in exchange in agriculture, particularly in the context of the household’s decision to engage in market exchange, in both input and output sides. The survey literature finds a confluence of definitions of transaction cost as applied to theoretical and empirical models. Coasian and Williamsonian definitions are used in interpreting fixed transaction costs while neoclassical and trade definitions (i.e., the concept of price band) characterize proportional transaction costs. The prominence of transport cost and the effect of distance and isolation in many of the analyses points to the influence of the new economic geography research stream. Measurement of transaction cost as an ad valorem tax also references the trade concept of transaction cost.