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A Model of Inter-Regional Trade in Grains with Storage

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  • Prabhat Vaze
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    Abstract

    When there is spatial arbitrage between food markets, the price differential between the markets should equal the cost of transfer. This simple arbitrage rule has formed the basis of many empirical tests of the performance of developing countries’ food markets. Here, a more complex structure to regional food markets is hypothesised. By including commodity storage into a model of inter-regional trade, it is shown that, in an optimal dynamic program, trade is intermittent. The possibility of periods without trade casts doubt on the validity of using tests for correlation in market prices as indicators of market performance.

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    File URL: http://www.econ.ed.ac.uk/papers/prabhat.pdf
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    Bibliographic Info

    Paper provided by Edinburgh School of Economics, University of Edinburgh in its series ESE Discussion Papers with number 10.

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    Length: 26
    Date of creation: Sep 2004
    Date of revision:
    Handle: RePEc:edn:esedps:10

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    Related research

    Keywords: Food markets; optimal control; storage; spatial equilibrium.;

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    1. Brennan, Donna & Williams, Jeffrey & Wright, Brian D, 1997. "Convenience Yield without the Convenience: A Spatial-Temporal Interpretation of Storage under Backwardation," Economic Journal, Royal Economic Society, vol. 107(443), pages 1009-22, July.
    2. Scheinkman, Jose A & Schechtman, Jack, 1983. "A Simple Competitive Model with Production and Storage," Review of Economic Studies, Wiley Blackwell, vol. 50(3), pages 427-41, July.
    3. Léonard,Daniel & Long,Ngo van, 1992. "Optimal Control Theory and Static Optimization in Economics," Cambridge Books, Cambridge University Press, number 9780521331586, December.
    4. Seierstad, Atle & Sydsaeter, Knut, 1977. "Sufficient Conditions in Optimal Control Theory," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 18(2), pages 367-91, June.
    5. Lester G. Telser, 1958. "Futures Trading and the Storage of Cotton and Wheat," Journal of Political Economy, University of Chicago Press, vol. 66, pages 233.
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