Rural infrastructure, transactions costs and market participation in Kenya

We develop a conceptual framework for quantifying fixed transactions costs facing semisubsistence households. Using household survey data from a sample of 324 Kenyan maize farmers, we jointly estimate household supply and demand schedules and transactions costs. Econometric results indicate that on average the ad valorem tax equivalent of fixed transactions costs for households in our sample is 15%. Additional analysis indicates that economic isolation is positively associated with the size of transactions costs. To the best of our knowledge, ours are the first empirical estimates of the magnitude of fixed transactions costs for agricultural households in developing countries. JEL classification: O1 Keywords: Transactions costs; Semisubsistence households; Market participation