Measuring the Importance of Transaction Costs in Cattle Marketing

Abstract Transaction cost economics recognizes that transactions do not occur in a frictionless economic environment. Information, negotiation, and monitoring costs arise in any transaction and can influence the vertical coordination outcome. This paper demonstrates a method for measuring the influence of transaction costs on slaughter cattle marketing. The paper focuses on the factors affecting the choice between liveweight (live‐ring auction) and deadweight (direct‐to‐packer) sales. Using Tobit limited dependent variable analysis, data from a survey of UK farmers are used to estimate the relative importance of various transaction costs and farm characteristic variables for the choice of marketing channel.