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Abstract
This paper investigates the impact of the institution of brokerage on the optimal search behaviour and the welfare gains
and losses of traders in the Ethiopian grain market. Without brokers, the privately optimal search diverges from the socially
optimal search due to the positive spill-over of individual search behaviour. Numerical analysis using the actual distribution
of search costs and search efficiency obtained from primary data collected in Ethiopia reveals that this externality is partially
internalised by the presence of brokers and that total welfare increases significantly due to a more efficient allocation of search
effort.© 2001 Elsevier Science B.V. All rights reserved.