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robert jensen on fishing in india

robert jensen on fishing in india - THE DIGITAL PROVIDE...

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THE DIGITAL PROVIDE: INFORMATION (TECHNOLOGY), MARKET PERFORMANCE AND WELFARE IN THE SOUTH INDIAN FISHERIES SECTOR * Robert Jensen When information is limited or costly, agents are unable to engage in optimal arbitrage. Excess price dispersion across markets can arise and goods may not be allocated efficiently; in this setting, information technologies may improve market performance and increase welfare. Between 1997 and 2001, mobile phone service was introduced throughout Kerala, a state in India with a large fishing industry. Using micro-level survey data, we show that the adoption of mobile phones by fishermen and wholesalers was associated with a dramatic reduction in price dispersion, the complete elimination of waste and near-perfect adherence to the Law of One Price. Both consumer and producer welfare increased. * I would like to thank two anonymous referees, Reuben Abraham, Christopher Avery, Satish Babu, Suzanne Cooper, Peter Cherian, Thomas DeLeire, Edward Glaeser, Sebastian James, C.M. Jolly, X. Joseph, Nolan Miller, C.K. Muhammad, Prakash Nair, Mai Nguyen, M. Philip, P. Philip, Lant Pritchett, V. Rajan, T.K. Sidhique, Joseph Thomas and Richard Zeckhauser for valuable comments.
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I. INTRODUCTION How do improvements in information impact market performance and welfare? Economists have long emphasized that information is critical for the efficient functioning of markets. For example, two of the most well-known results in economics, the First Fundamental Theorem of Welfare Economics (i.e., competitive equilibria are Pareto efficient), and the ‘Law of One Price’ (i.e., the price of a good should not differ between any two markets by more than the transport cost between them) rely heavily on the assumption that agents have the necessary price information to engage in optimal trade or arbitrage. These results reflect some of the most fundamental functioning of, and advantages to, a market economy; when goods are more highly valued on the margin in one market than another, a price differential arises and induces profit-seeking suppliers or traders to re-allocate goods towards that market, in the process reducing the price differential and increasing total welfare. In reality, however, the information available to agents is often costly or incomplete, as emphasized by Stigler [1961]. In such cases, there is no reason to expect excess price differences to be dissipated or the allocation of goods across markets to be efficient. Yet despite the fact that information is both central to economic theory yet so limited in reality, there are few empirical studies assessing the effects of improvements in information. Thus, questions such as how much market performance can be enhanced by improving access to information, how much society gains from such improvements, and how those gains are shared between producers and consumers remain largely unanswered. In this paper, we examine these questions by exploiting the introduction of mobile phones in the Indian state of Kerala as a natural experiment of improved market information.
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