Efficiency of Agrarian Organizations
15 Pages Posted: 22 May 2006
Date Written: 2004
The goal of this paper is to incorporate achievements of the New Institutional and Transaction Costs Economics to analysis of efficiency of agrarian organizations in transitional economies. That modern framework for analysis of agrarian organizations is based on their role to govern transactions between individual agents. Since governing (coordination, organization) of transactions is associated with significant costs (for finding best prices and partners, for negotiation and contracting, for monitoring and enforcement of contract terms, for adjustment and re-negotiation according to changed conditions of exchange, for dispute resolutions etc.), the economic efficiency of agrarian organizations has to assess not only their capacity to minimize the production costs, but their potential to economize transacting costs as well.
Initially, main kinds of transactions of the managers of agrarian transactions (farms entrepreneurs) are clarified as land, labor, service, inputs, and finance supply; marketing; and collective actions. After that, the alternative market, non-market, and mixed modes for organization of different types of agrarian transitions are identified. Next, various types of costs associated with each form of transacting are determined. And then, the comparative efficiency of different governance structures is estimated according to (minimum) transacting costs criteria.
One direction for evaluation of comparative efficiency of governing structures is based on direct assessment of items of costs for transaction in different organizations. However, that manner is often restricted since: difficulties (or impossibility) to measure absolute level of transaction costs; opposite dynamics of different items of costs in various organizations; great use of complex (and interlinked) rather than pure modes in transitional agriculture; and not existence (missing) of alternative form for organization (the base for comparison).
Another direction is through comparative structural (qualitative) analysis of alternative governing forms. Firstly, critical factors of transactions in particular institutional environment are identified. These factors affect transaction costs variation, and they are associated: with behavioral characteristic of agrarian agents (bounded rationality, tendency for opportunism, building of reputation, risk aversion, level of trusts); and with economic dimensions of individual transactions (frequency, uncertainty, assets specificity and appropriability).
Secondly, assessment is made on effective potential of alternative organizational modes to: minimize bounded rationality of agrarian agents and uncertainty associated with transacting; to appropriate and protect private rights and investments from possible opportunism; to recover long-term investments for organizational development through high recurrence of transactions between same agents; to exploit economy of size and scale on specific for relationship with a particular partner capital etc.
Third, principal matrix of generic organizational modes is build for effective governance of transactions with different combination of critical dimensions: free market mode is effective to carry out transactions with high appropriability and low assets specificity; the special contract form is appropriate for transactions with high frequency, and increased uncertainty and assets specificity; the internal integration can manage effectively repeated transactions with high capital dependency and big uncertainty; the hybrid and public modes are the most effective forms for occasional transactions with low appropriability and high assets specificity.
Finally, effective horizontal and vertical boundaries of every specific form within each generic modes could be determined through comparison of their potential to explore economy of size (scale) on specific or (and) specialized assets, and their comparative efficiency to minimize bounded rationality and to control opportunism of counterparts.
Keywords: agrarian governance, efficiency of agrarian organizations, new institutional and transaction costs economics
JEL Classification: D23, L22, M13, 017, Q13
Suggested Citation: Suggested Citation