Contract Engagement in the Small-Scale Tuna-Fishing Economies of East Java

We examine the informal contractual relationships formed by artisanal fishers (AFs) and intermediaries in the small-scale tuna-fishing economies of East Java, Indonesia, using data from a survey of 436 boat captains. Our exploration of the factors motivating AFs to engage in such contracts uses instrumental-variable probit regressions to control for endogeneity in our transaction-cost economics model. This model incorporates the importance of household characteristics, transaction characteristics, transaction costs, risk behaviour, and trust in the choice of contract between AFs and their intermediaries. These intermediaries play an important role in facilitating transactions and contractual relationships between AFs and processors in the marketing value chain. We find that social capital is a statistically significant instrumental variable in our model. We also find that risk behaviour and trust are not statistically significant in influencing the choice of governance structure.