[Journal:] Agricultural and Food Science (AFSci) [ISSN:] 1795-1895 [Volume:] 18 [Issue:] 1 [Publisher:] The Scientific Agricultural Society of Finland [Place:] Jokioinen [Year:] 2009 [Pages:] 3-15
The Scientific Agricultural Society of Finland, Jokioinen
In many parts of the world, rural development is supported by third sector organizations, such as nongovernmental organizations, farmer associations, and cooperatives. This essay develops a transaction cost explanation of these organizations role in rural areas. Since the traditional transaction cost theory is concerned with the choice of governance mechanisms within the for-profit sector, this essay adopts an alternative conceptualization of the notion of transaction cost by building on the theory of the division of labor. This theory regards transaction cost as a constraint on the division of labor causing the replacement of exchange with self-sufficiency. The proposed transaction cost explanation of rural third sector organizations consists of two arguments: 1) third sector organizations embody partial reliance on self-sufficiency; and 2) rural areas exhibit rurality-specific transaction cost acting as a constraint on the division of labor and thus creating a niche for third sector organizations. The essay concludes with suggesting a research program on developing an economic theory of the rural third sector.