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Bargaining through social networks : a conceptual approach and empirical application in Jambi, Indonesia

University of British Columbia

Local agricultural markets are deeply socially embedded and strongly governed by local social norms and structures and these affect the degree of bargaining power that a farmer holds when negotiating the sale of their goods. Standard economic measures of bargaining power typically do not capture the effect of social factors on bargaining power and therefore offer a limited understanding of farmers’ opportunities and constraints in the face of imperfect market competition and in the absence of formal contracts. This thesis establishes links between social network analysis concepts common to sociology and well-known economic concepts in order to demonstrate that social network measures can be used to observe the effect of social factors on farmers’ bargaining power. These concepts are used to investigate whether the structure of a market and a farmer's position within it affect the level of competition in the market and whether the strength of the relationships a farmer maintains with their traders affect their bargaining power and, by extension, the prices they receive for their goods. A conceptual model is presented to show the links between the social network concepts of network centralization, degree centrality and strength of ties to the economic concepts of competition, outside options, and informal contract enforcement. The model is tested by an empirical analysis of farmers’ bargaining power in 3 rubber markets in Jambi, Indonesia. The findings show that social network analysis can be used to respond to some of the challenges of conceptualising and measuring social factors in economics. Network centralization is used to show that unequal access to buying options among sellers can lead to monopsonistic competition, allowing buyers to capture greater surplus. Degree centrality shows that an actor whose position in the network is highly central has greater outside options and that these can be leveraged to bargain a higher price. Using a measure of strength of ties, it is also shown that the share of the bargaining surplus going to the farmer is increased when there is trust between them and the buyer.

Text

2017-01-21

Attribution-NonCommercial-NoDerivatives 4.0 International

http://hdl.handle.net/2429/60144

Integrated Studies in Land and Food Systems

University of British Columbia

UBCV

http://creativecommons.org/licenses/by-nc-nd/4.0/