Credit and Trust: Fruit Markets in the Mekong Delta

Published on: 07/23/2008 16:24

Description:

Vu Thanh Tu AnhBrian JM Quinn

UNDP Policy Dialogue Paper 2008/1
Ha Noi, June 2008

Foreward

Markets  require  clear  rules  and  supporting  institutions  to  function  properly.  Millions  of  business  deals  are made  every  day  between  complete  strangers,  and  most  of  these  transactions  will  not  be  repeated.  If individuals and businesses come to believe that contracts cannot be enforced, the cost of doing business will rise for everyone. Cultural norms and social ties are effective means of controlling bad behaviour within small communities, but they are not much help when markets operate beyond the boundaries of the village or small town.

This paper reports  results from a survey of 180 farmers and 47 traders in the Mekong Delta's pomelo fruit market.  The  authors  found  that  contract  enforcement  remains  a  serious  problem  in  the  fruit  trade.  Since transactions  are  risky,  costs  are  higher  than  they  should  be  for  both  farmers  and  traders. The paper also considers the appropriate policy response to this situation. The best solution would be to guarantee easy and affordable access to a transparent and impartial legal system. But the authors are aware that legal system development will take some time. In the meantime, the creation of feedback mechanisms that facilitate the development of commercial reputations would represent a cost-effective alternative.