Closing the price gap - Von Thünen applied to wheat markets in 18th century Spain

According to the literature, transaction costs are influenced by several factors, ranging from institutional differences to asymmetric information. However, testing these hypotheses requires rich data not usually available in historical sources. In this study, we use a large-scale census of 1749 to analyze price gaps of wheat across rural municipalities and their local markets in Old Castile. For the first time in the literature, we examine price gaps across 5,163 contiguous municipalities and assess transaction costs with unprecedented detail. By employing canonical variables and testing for spatial autocorrelation, we explore the determinants of transaction costs and contribute to the ongoing debates around the "Little Divergence." Our findings not only shed light on the factors that influence transaction costs but also represent a step forward in operationalizing them. Overall, this study offers new insights into the factors that shape transaction costs and contributes to the literature on the "Little Divergence." Our analysis demonstrates the importance of rich data in testing hypotheses related to transaction costs and highlights the benefits of using historical data to inform contemporary debates in economics.