Transaction Costs in the Trading System of Cashew Nuts in the North of Benin: A Field Study

Introduction In the agriculture-based economy of Benin, cashew nuts represent the second largest agricultural export commodity after cotton (MAEP 2006; Mohamed 2007; ONASA 2008; PAM 2008). In terms of volumes of exported cashew nuts, Benin is ranked sixth in the world's market and it generates the second best quality of cashew nuts in West Africa (MAEP 2003). In the northern part of Benin, representing the most important production zone, many actors, natives as well as foreigners, are involved in the cashew nut trading. During the trading season, which extends from February to June, cashew nut trading represents for many young collectors, traders, and merchants their main employment and the largest share of their annual income (Mohamed 2007). Information research about the market conditions, identification of the production villages, research on the real availability of the products in the villages, negotiation with producers and potential suppliers, contract signing, and enforcements are some of the activities in the cashew nut trading season. Such activities are associated with special costs called "transaction costs" (Coase 1937; Matthews 1986; North and Wallis 1994; Williamson 1990, 1991, 1996), which could be summarized as the costs resulting from the transfer of property rights from one economic agent to another (see more details below). According to the magnitude of these transaction costs, different institutional arrangements or exchange agreements may occur. Which arrangement is made in a given situation depends on the transaction or the exchange attributes, which, according to Williamson (1990: 108, 1991: 281), are the human characteristics of the decision makers and the characteristics of the environment. Despite the theoretical importance, in general rare empirical studies are devoted to transaction costs, and more specifically, studies on Benin that analyze and quantify these costs are lacking. Against this background this article empirically analyzes the transaction costs generated by the cashew nut trading in the north of Benin, considering two research questions: What is the importance of the transaction costs in the cashew nut trading in the north of Benin? Which specific factors determine the magnitude of the transaction costs incurred by the cashew nut trading actors? The next section of this article is devoted to the conceptual and theoretical frameworks. This is followed by the description of the study area, the methodology used to collect the data, the econometric model, and the statistic methods used. The next section exposes the empirical findings of the study, their analysis, and the discussion. Finally we present the conclusion. Conceptual and Theoretical Frameworks Concept and Theory of Transaction Cost The concept of transaction costs dates back to Coase (1937). However, other authors like Williamson (1990, 1991, 1996) made this concept an important research area of the "New Institutional Economics" (Bardhan 1989; G6bel 2002; Harris, Hunter, and Lewis 1995; North 1986, 1995). A universal definition of the transaction costs does not yet exist. According to Coase (1937, 1993) the transaction costs are the costs that are linked to the use of the market mechanism or price mechanism. They consist of the costs related to the price research, costs of negotiating and specification of the goods to be transferred, costs of enforcement, and control of contracts. Also belonging to transaction costs are the "administration costs" (Coase 1993: 148) or the "bureaucracy costs" (Williamson 1990: 169), which are the costs associated to the internal organization of the firm. These costs occur, when one chooses to use the firm instead of the market in order to reduce transaction costs. Following North and Wallis (1994: 612) and based on the concept of property rights, Pejovich (1995: 84) defined transaction costs as: "the costs of all resources required to transfer property rights from one economic agent to another. …