The Vietnamese Hog Market
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that bilateral arrangements between assemblers and their agents are relational
contracts enforced by mutual trust built between parties in repeated transactions.
The most important finding of the institutional analysis is that while mutual
trust is sufficient to enforce T1 and T2 contracts in the South, it must be
accompanied by other means of enforcement in the North. There exist some hog
merchant networks composed of assemblers and their rural agents, who operate in
a geographic area corresponding to one or two districts. The merchant networks,
similar to the medieval Maghribi coalitions described by Greif (1993), are
fulfilling several functions in the North: (1) joint problem-solving arrangements
and solidarity between members that are effective for transport, for buying and
selling negotiations, and for informal relations with the police; (2) extension of the
areas of collection and the market by using the services of rural agents; (3)
guarantee of the quality of hogs going to urban areas by the sorting done by
merchants; (4) reduction in potential opportunistic behavior within the network.
The agency relations between assemblers and agents are enforced by the credible
threat of collective punishment, since information on past cheating behavior is
common knowledge of the network members; and (5) reduction of potential
opportunistic behavior outside the network. The agency relations between
assemblers and slaughterers are also enforced by the coalition. Nevertheless, the
enforcement power is limited to the area of the network. As slaughterers are
supplied by assemblers from several provinces, the threat of boycott by a network
from a district of a specific province is hardly credible.
The existence of the these networks not only favors mutual aid and sanctions
based on multilateral reputation (Milgrom, North, and Weingast, 1985), but they
also support the definition of collective rules for fixing prices. The survey data
show that, within a network, merchants define daily a common price for the
purchase of hogs, and that they respect this common price when they buy
individually. The data also show that some merchants can be excluded from the
network if they consistently do not respect the common price.
Moreover, in the North, one assembler contracts with only one slaughterer—
but a slaughterer is the agent of assemblers from several regions. In addition to
being the agent of assemblers to kill the hogs and to sell the carcasses, a
slaughterer is providing services that maintain assemblers in a state of depen-
dency: (1) long-term credit is often offered by slaughterers to assemblers who also
provide them with private protection services against theft and police abuses
(illegal tax collection); (2) to facilitate the transport of hogs by assemblers,
slaughterers often register trucks owned by collectors in their names. Thus, there
is an important specific investment from slaughterers to assemblers that justifies
the exclusive contracts system.
In the South of the country, brokers only sell carcasses. They do not provide
other services to assemblers, nor to retailers. Credit is provided by specific actors,