Trust, transaction costs, and contract enforcement: Evidence from apple farmers in China

Abstract

Purpose – The purpose of this paper is to examine the impact of trust and transaction costs on farmers’ contract enforcement choices using cross-sectional data collected from apple farmers in China.

Design/methodology/approach – This study employs ordered probit model in a two-stage regression procedure to conduct the empirical analysis.

Findings – The empirical results show that trust and transactions costs significantly influence smallholders’ contract enforcement choices. In particular, longer distance to collective place and delayed payment have negative and significant impacts on contract enforcement, while farmers’ cognition trust has a positive and significant impact on contract enforcement. Factors such as education, distance to main road and price premium also tend to have positive and statistically significant impacts on contract enforcement choices.

Originality/value – This study used first-hand survey data to examine the impact of transaction costs and trust using proxy variables on apple farmers’ contract enforcement choices.