Impacts of agricultural transaction costs on supply response: A cross section analysis for Turkey

Transactions costs cover the costs of factors such as monitoring, coordination, contract implementation and information collecting which are immeasurable in monetary terms but which may create incentives/disincentives with their absence/existence for economic activities. In the case of agricultural sector transaction costs arise during the process of input acquirement, agricultural production, transportation of products to markets and price formation. These mostly immeasurable costs cannot be easily controlled by market instruments but can affect production decision of farmers. In this study, first the theoretical fundamentals of transaction costs are summarized and then transaction costs regarding the agricultural activities are reviewed by referring to relevant applied studies. Later, alternative empirical models of supply response are introduced by basing on the literature that argues transaction costs may affect agricultural supply. In the empirical part, the study analyzes the impacts of changes in transaction costs on agricultural supply response. The survey sample used in this study shows that transaction costs may affect supply response in agricultural sector. Moreover, it is observed the effects of transaction costs may develop in two dimensions/directions. While first is related to availability of agricultural inputs and possibility of reaching those required inputs, the second is related to possibility of access of consumers to produced commodities. It is observed that organized and collective behavior may reduce transaction costs in both dimensions and hence may increase supply response.