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Governance systems between cassava producers and starch industries: a transaction costs economy approach

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Author(s): Olivier Fran├žois Vilpoux

Journal: Informe GEPEC
ISSN 1676-0670

Volume: 14;
Issue: 1;
Start page: 127;
Date: 2010;
Original page

Keywords: New economy of institutions | Discriminant analysis | Vertical integration | Contracts.

ABSTRACT
In Brazil the development of cassava starch industries depends of the governance systems adopted between producers and starch factories. The methodology of transaction costs economy was used to evaluate the influence of the characteristics of transactions on governance systems adopted. For this, 37cassava starch industries have been visited, all located in the main Brazilian producing regions. The analysis classified the governances into 4 types, from market to vertical integration. Characteristics of transactions have been separate in two groups, one including characteristics common to all the industry and one which individual characteristics. In the case of individual characteristics, the results were in agreement with the transaction cost theory. The increase in asset specificity and risk facilitates the adoption of institutional arrangements with more guarantees, such as contractual relationships and vertical integration. For characteristics of transactions homogeneous in all regions, the results indicate a preference for market, despite the existence of specific assets and high risk levels. This result can be explained by the existence of institutional uncertainty and higher costs for vertical integration. In this case, market relations become the governance with lower transaction costs.
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