Toward a Transaction Cost Economics of Rural Development

Abstract

It has long been recognized that voluntary organizations contribute to the economic development of rural areas in all parts of the world. This paper argues that the developmental role of voluntary organizations in rural areas can be explained in terms of a rurality-specific transaction cost that lowers the profit obtainable by ordinary profit-maximizing firms in rural areas. As voluntary organizations pursue non-profit objectives, their operation is not hindered by the rurality-specific transaction cost. The paper provides preliminary evidence and calls for empirical research on the relationship between rurality and the rural voluntary sector.

Acknowledgement

The authors are grateful to the anonymous reviewers for helpful comments.