Transaction costs and social networks in productivity measurement

Geraldine Henningsen, Arne Henningsen, Christian H. C. A. Henning

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    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.
    Original languageEnglish
    JournalEmpirical Economics
    Volume48
    Issue number1
    Pages (from-to)493-515
    Number of pages23
    ISSN0377-7332
    DOIs
    Publication statusPublished - 2015

    Bibliographical note

    Fundingwas provided by the European Union’s sixth framework programme within the project Advanced-Eval.

    Keywords

    • Information networks
    • Transaction costs
    • Semiparametric estimation
    • Nonparametric estimation
    • Productivity analysis
    • D22
    • D23
    • D24
    • D85
    • L14
    • Q12

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