Effects of transaction costs on supply response and marketed surplus

Nicholas Minot

No 36, MTID discussion papers from International Food Policy Research Institute (IFPRI)

Abstract: This paper explores the effect of transaction costs on aggregate supply and demand and marketed surplus. A five-good non-separable household model is used to illustrate the effect of transaction costs on a generic African household. Then, the paper examines the aggregate behavior of a market consisting of 50 such households with varying production capacities. The simulations reveal that transaction costs not only decrease market surplus but that they can substantially reduce the elasticity of supply and demand. Under other circumstances (when almost all households are net sellers), transaction costs can also make supply and demand more elastic. Finally, the results show that transaction costs generally increase the price elasticity of marketed surplus. The implications for research in agricultural marketing are discussed.

Keywords: Markets Prices.; Price regulation. (search for similar items in EconPapers)
Date: 1999
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:fpr:mtiddp:36

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