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An analysis of the effects of transaction costs on farmers’ market participation in the rice sector of the Philippines
Dissertation Abstract:
A simple market participation model with transaction costs was developed to look into the effects of different transaction costs variables on farmers’ rice market participation as a net seller. Using Heckman’s two-step estimator to estimate the model, results showed that transaction cost variables such as income class of the municipality, access to informal credit, and years of education increased market supply. A regime switching experiment was done, from which, the autarky price and subsequently the value of transaction costs that households bear for each regime was computed. The computed transaction cost value was PHP 3.22/kg for net sellers and at least PHP 40.88/kg for non-sellers if they marketed their output. Numerical simulations for alternative transaction cost assumptions showed that lower transaction costs result to higher effective prices and to higher marketed supply.