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Transaction costs and social networks in productivity measurement

Author

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  • Geraldine Henningsen
  • Arne Henningsen
  • Christian Henning
Abstract
We argue that in the presence of transaction costs, observed productivity measures may in many cases understate the true productivity, as production data seldom distinguish between resources entering the production process and resources of a similar type that are sacrificed for transaction costs. Hence, both the absolute productivity measures and, more importantly, the productivity ranking will be distorted. A major driver of transaction costs is poor access to information and contract enforcement assistance. Social networks often catalyse information exchange as well as generate trust and support. Hence, we use measures of a firm’s access to social networks as a proxy for the transaction costs the firm faces. We develop a microeconomic production model that takes into account transaction costs and networks. Using a data set of 384 Polish farms, we empirically estimate this model and compare different parametric, semiparametric, and nonparametric model specifications. Our results generally support our hypothesis. Especially, large trading networks and dense household networks have a positive influence on a farm’s productivity. Furthermore, our results indicate that transaction costs have a measurable impact on the productivity ranking of the farms. Copyright Springer-Verlag Berlin Heidelberg 2015

Suggested Citation

  • Geraldine Henningsen & Arne Henningsen & Christian Henning, 2015. "Transaction costs and social networks in productivity measurement," Empirical Economics, Springer, vol. 48(1), pages 493-515, February.
    • Handle: RePEc:spr:empeco:v:48:y:2015:i:1:p:493-515
    DOI: 10.1007/s00181-014-0882-y
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    References listed on IDEAS

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    More about this item

    Keywords

    Information networks; Transaction costs; Semiparametric estimation; Nonparametric estimation; Productivity analysis; D22; D23; D24; D85; L14; Q12;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets

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