Sunday, January 29, 2006

Cellphones induce greater market efficiency on the fish market

The best Indian economics conference that I know is the NCAER-NBER Neemrana conference, which takes place in Dec/Jan every year. This year, one fascinating paper was by Robert Jensen of Harvard, who has worked on the impact of cellular telephony on pricing efficiency on the market for fish in Kerala. It's a great story, and Swaminathan Aiyar wrote his column in Times of India this morning using it. I haven't been able to locate a PDF of the full paper by Prof. Jensen. It's well worth reading - please tell me if you find the URL.

As Jensen emphasises, what is going on is the power of the `I' in IT. Putting better information in the hands of economic agents transforms their thought process and maximisation. I feel similarly about the work that's been done in India on bringing transparency to previously opaque market, by polling dealer markets. This includes MIBOR (done by NSE) and the NCDEX polled prices for the commodity spot markets (done by CMIE and CRISIL).

(Times of India has a really terrible website, so while I normally like to link to original sources, I have instead linked up to Swami's website. If someone from TOI reads this, please see these guidelines for you are violating most of them.).

12 comments:

  1. hi Sir,

    It is really fascinating how competition and technology together can affect such positive changes across villages and societies.

    Found these two pdfs from the professor you mentioned -

    web.mit.edu/sinana/www/sari.pdf

    www.cid.harvard.edu/cr/pdf/gitrr2002_ch07.pdf
    (This is a similar study done in the Chinese market by the same gentleman)

    ReplyDelete
  2. Ravi,

    No, these two URLs are both related (insofar as Robert Jensen does lots of work on related themes) but they are not the paper on Kerala, mobile phones, and fish markets. I hope that papers turns up soon on the web.

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  3. Hi

    I had been hearing about the Kerala fishermen from BPL executives for some time - BPL was one of the two circle operators in Kerala.

    But didn't realise how efficiently the telecom network served the waterways (and thus the river/sea economy) until I travelled, two or three years ago, by speed boat from Cochin to Alleppey and Kumarakom on the backwaters.

    Amazingly, I had a signal on my mobile phone right through despite it getting pretty isolated in some parts. The guy who was driving the boat would keep getting phone calls all the time. So, he had one hand on the phone and one the wheel, the boat's wheel !

    And guess what ? Driving back from Kumarakom to Cochin by road, there were long stretches when there would be no phone signal !! Don't know if its changed now.

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  4. Dear Ajay,
    The gains in efficiency cited need to be `deconstructed' into:
    (a) the usage of technology to lock-in prices - thus in essence cellphones enable a standard futures contract markets. an empirical test should be that the ex-post cell-phones the lagged prices of marine products are significant predictors of spot prices. ex-post the lagged effect of the prices of the marine products should be less stochastic, and thus the trend is significant but lagged deviations from the mean are insignificant.

    (b) on a more macro-level, the risk-minimization due to technology leads to improved consumption smoothing in this micromarket - which in turn leaves other related-micromarkets (like the small restaurants, food hawkers) to either forgo, or exploit, the gains from informational arbitrage - thus causing an "informational cascade" across sectors.

    don't know where to find data for (a) to write a paper. what do you think?
    cheers. k.,

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  5. Why do you expect that in an efficient market, there should be bigger AR terms? Jensen does look at simple volatility - both across space and time - and he finds that post cellphones, the vol goes down. In the pre-cellphone period, there were episodes where the price of fish (a perishable) used to go to 0! Now those episodes don't happen.

    He also tries to think about who captured what part of the welfare gains. Some of it went to the producer, some of it went to consumers. I wish we got a URL for his paper or slideshow. Thus far, it doesn't seem to be up on the net.

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  6. CORRECTION TO POST # 4. NOTE THE CAPITALIZED CHANGES.
    (MISTAKE DUE TO LATE NIGHT FORAYS ON CAFFEINE!)

    a) the usage of technology to lock-in prices - thus in essence cellphones enable a standard futures contract markets. an empirical test should be that the ex-ANTE cell-phones the lagged prices of marine products are significant predictors of spot prices. ex-post the lagged effect of the prices of the marine products should be less stochastic, and thus the trend is significant but lagged deviations from the mean are insignificant.

    ReplyDelete
  7. Hi Ajay,

    The article is now posted at the following URL:

    http://www.swaminomics.org/articles/20060129_Cell_ridge_the_dig.htm

    Thanks,
    Mukul.
    http://mukulblog.blogspot.com/

    ReplyDelete
  8. Ajay,
    Did you finally manage to locate the full text of Jensen's study on the Kerala Fishermen? If so, please advise on the same.

    ReplyDelete
  9. The Economist has an article on Jensen's study (May 10th 2007). it cites the following reference:

    *“The Digital Provide: Information (technology), market performance and welfare in the South Indian fisheries sector”, by Robert Jensen. To be published in the Quarterly Journal of Economics, August 2007.

    ReplyDelete
  10. Here are two studies, I found in this blog
    http://bayesianheresy.blogspot.com/2007/05/how-mobile-phone-brought-down-price-of.html

    http://www.ncaer.org/downloads/lectures/popuppages/PressReleases/popuppages/PressReleases/7thNBER/RJensen.pdf

    http://econ.lse.ac.uk/courses/ec515/L/lecture2.pdf

    ReplyDelete
  11. some how last post the first link got cut off
    so I am separating it into three lines

    "http://www.ncaer.org/downloads/lectures/
    popuppages/PressReleases/popuppages/
    PressReleases/7thNBER/RJensen.pdf"

    ReplyDelete

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