Author : Agham C. Cuevas

Summary : A simple market participation model with transaction costs was developed to look into the effects of different transaction costs variables on farmers' rice market participation as a net seller. using Heckman's two-step estimator to estimate the model, results showed that transaction costs variables such as income class of the municipality, access to informal credit and years of education increased marketed supply through both increased market participation and increased marketed supply among participants. A regime switching experiment was done, from which the autarky price and subsequently the value of transaction costs that households bear for each regime wa computed. The computed transaction cost value was Php 3.22 per kg. for net sellers and at least Php 40.88 per kg. for non-sellers if they marketed their output. Numerical simulations for alternative transaction cost assumptions show that lower transaction costs results to higher effective prices and to higher marketed supply.