This dissertation addresses a fundamental aspect of market behavior: how do buyers and sellers find each other and coordinate the transfer of goods? Standard economic theory assumes that the coordination of exchange between agents is costless and that economic agents are anonymous and perfectly interchangeable. The role of intermediaries in coordinating markets is largely ignored. In reality, exchange is subject. to commitment failure, embedded in personal relationships, and involves the costs of obtaining and processing information, searching for partners, screening offers, and negotiating, monitoring, and enforcing contracts.;This dissertation examines the consequences of the transaction costs of search on the emergence of the institution of brokerage in the Ethiopian grain market, where grain is traded over considerable distances between surplus and deficit zones. Brokers in Ethiopia facilitate long-distance trade in a market with little public information, non-standardized grain, no official inspection, and limited legal enforcement.;An intertemporal. search model is constructed to link trader-specific search costs, the opportunity costs of labor and of holding capital in grain inventory during search, as well as traders' social capital, with the use of brokerage. This model is tested empirically, using primary data from a survey of 169 traders and brokers in seven regions, to determine whether traders' contractual choices minimize their individual transaction costs. A two-stage Tobit estimation is carried out to test traders' choice of the location of trade, in the first stage, and the choice of brokerage, by type and location of transaction, in the second stage. The results reveal that traders with high costs use more brokerage while traders with high social capital rely on direct search, confirming that brokerage is used to minimize transaction costs.;In order to analyze the global welfare effects of brokerage, an equilibrium model of optimal search intensity is constructed that incorporates traders' endogenous choices of an optimal level of search intensity. Numerical analysis of this model, using the actual distribution of transaction costs in the Ethiopian grain market, compares total net profits with and without brokerage in the economy and demonstrates that brokerage increases economic welfare by increasing the efficiency of search allocation.
展开▼