Browsing by Author "de Guzman, Reinier"

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    Family network as informal contract enforcement mechanism
    (2019-07) de Guzman, Reinier
    This paper investigates an informal contract enforcement mechanism that could induce positive-sum transactions between a firm and farmers. There is a hold-up problem of firms not engaging with smallholders given the risk of side-selling. I examine the experience of Lamac Multipurpose Cooperative in buying vegetable produce from smallholders and selling these to institutional markets. I model this as a repeated game between the cooperative and the individual farmer. The model predicts that a stronger family network reduce the optimal price that the cooperative would need to offer to a farmer in order to make it rational for her to honor the contract. Data on committed delivery, actual sales, and farmers’ network centrality measure are used to test this.