World Food Policy Volume 2, Number 1, Spring 2015 | Page 57

World Food Policy

center. Land rent is defined as the share
of the output by area after deduction of
production and transport costs. The most
profitable and intensive land use by unit
area, and commodities with high value
relative to transport costs, are found near
the city center. This is typically the case
for perishable fruits and vegetables. The
validity of von Thünen’s model is being
brought back into question in industrial
societies where the share of transport cost
in the total cost decreases, and dominant
factors in the locating of production are
soil quality, regional specialization, and
competition between agriculture and
urban development (Huriot 1994).

to the fore by Williamson (1987).
Transaction costs means all indirect costs
incurred in setting up, conducting, and
monitoring the transaction, i.e., the cost
of searching out, selecting, agreeing to,
implementing, and enforcing contracts
(North 1990). Measurement costs
of quality characteristics are specific
types of transaction costs. The safety of
food produce is a quality attribute that
is especially difficult to observe and
measure. The consequences of quality
measurement constraints on the supply
of low-quality produce (as good quality
produce does not get a quality premium)
and even disappearance of market
transactions have been demonstrated
by Akerlov (1970). Increased vertical
integration is a response to a greater
number of quality measurement errors
(Barzel 1982). Transaction costs relate
here to establishing mutual views about
honesty, reliability, and skill, as well as rules
and norms concerning contingencies. On
the other hand, drawing from the game
theory, the expectation of continuing
exchange may provide a disincentive
to cheat: the infinite repetition of a
transaction can induce the parties to
give up short-term benefits in order
to realize future gains (Platteau 1994).
Personalized relationships, which can
also be termed as relational governance,
are an intermediary mode between
the two polar extremes of governance
(Claro, Hagelaar, and Omta2003),
market and hierarchy (Williamson
1991). Trust reflects the extent to which
negotiations are fair and commitments
are sustained (Anderson and Narus
1984). Trust counterbalances the need
for a costly safeguard mechanism against
opportunism. Trust (inter-personal as

c. The advantages of relational proximity

Geographical proximity goes
hand in hand with relational proximity,
as it may favor more direct links between
producers and consumers. Such direct
links are efficient in the development of
trust and loyalty, as well as some sense of
responsibility on the part of farmers as
regards food safety (Prigent-Simonin and
Hérault-Fournier 2005). According to
Ellis and Sumberg (1998), the advantages
in terms of quality gained by proximity
between suppliers and customers—in
particular trust—may be a transient
consequence of quality regulations not
being adequately enforced. But they
may also be considered as an efficient
substitute for costly and difficult public
control of food safety in the context of
small-scale agriculture.

Personalized relationships in
market transactions play the role of
minimizing transaction costs (Porath
1980). The role of vertical integration in
reducing transaction costs was brought
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