Education

Education

  • Submitted By: belioblak
  • Date Submitted: 01/19/2014 1:46 PM
  • Category: Philosophy
  • Words: 934
  • Page: 4
  • Views: 61

Transaction Cost Analysis Case Study: Chad Cotton Sector PSIA
This PSIA set out to analyze the distributional impacts of a proposed policy reform to privatize and liberalize the cotton sector in Chad. The cotton sector in Chad is organized primarily around a vertically integrated state-owned enterprise, CotonChad, which has become an increasingly loss-making concern because it has been exposed to negative terms of trade, with declining world commodity prices for cotton fiber. Transaction costs arise within the hierarchical production structure where informational and incentive shortcomings persist. The following transaction cost analysis illustrates how to begin to structure thinking about transaction costs associated with contractual relationships; it begins by placing the actors in two basic categories: macro and micro institutional actors. Macro-level Concerns Macro-level actors are those sectoral agencies and organizations—including CotonChad— agricultural extension agencies, research outfits, and regulatory bodies. The transaction cost analysis informs the PSIA on the macro-level by highlighting the following two issues: Privatization: maximization versus equity concerns Because one of the objectives of privatization is to shift risk from the public sector to the private sector, PSIA must be attuned to variants of the adverse selection problem here. Bidding documents need to be structured in a way that does not offset perceived contractor risk. Under a management contract scenario, fixed payments need to be linked to variable payments to help the agent meet the principal’s objectives of higher revenues for cotton producers. Under a concession arrangement, PSIA needs to consider how to structure the bid package to award points not simply on the basis of price—which would represent a rational maximization strategy of the transaction for the government—but also for technical approaches to pursuing the government’s medium- to long-term objectives....

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