Of Markets and Middlemen: Transforming Agricultural Markets in Ethiopia

Conference name, dates, place

International Conference on Contemporary Development Issues in Ethiopia, August 16-18, 2001, Kalamazoo, Michigan

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This paper argues that, in the absence of formal mechanisms to deter commitment failure in the Ethiopian grain market, a market institution that promotes anonymous exchange among unknown parties is that of grain brokers who match buyers and sellers in return for a fee. The paper examines the characteristics, operations, and functions of brokers in the Ethiopian grain economy and analyzes how brokers enable grain traders to circumvent the commitment failure problem that is intrinsic to a weak marketing environment. The paper also demonstrates that agency relations are long-term, reputation-based, not based on ethnicity, and relatively conflict-free. Conflict is avoided and agency relations are sustained by underlying incentive-compatible norms, namely, the joint-client system, the absence of market-making, and flat commissions. Finally, the paper discusses the implications of the presence of brokers for transforming agricultural market performance.

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