IDEAS home Printed from https://ideas.repec.org/a/cup/ereveh/v14y2010i03p361-381_00.html
   My bibliography  Save this article

The gains from improved market efficiency: trade before and after the transatlantic telegraph

Author

Listed:
  • EJRNÆS, METTE
  • PERSSON, KARL GUNNAR

Abstract

This article looks at the gains from improved market efficiency in long-distance grain trade in the second half of the nineteenth century, when violations of the law of one price were reduced due to improved information transmission. Two markets, a major export centre, Chicago, and a major importer, Liverpool, are analysed. We show that the law of one price equilibrium was an ‘attractor equilibrium’. The implication is that prices converged to that equilibrium in a tâtonnement process. Because of asymmetrically timed information between markets separated by long distances there were periods of excess demand as well as excess supply, which triggered off the tâtonnement process. Over time, adjustments to equilibrium, as measured by the half-life of a shock, became faster and violations of the law of one price become smaller. There were significant gains from improved market efficiency, which took place after the information ‘regime’ shifted from pre-telegraphic communication to a regime with swift transmission of information in an era that saw the development of a sophisticated commercial press and telegraphic communication. This article is the first attempt to actually measure the gains from improved market efficiency and it demonstrates that improved market efficiency probably stimulated trade more than falling transatlantic transport costs. Deadweight losses decline significantly as markets became more efficient. The conventional view that Harberger triangles are almost always insignificant is challenged.

Suggested Citation

  • Ejrnã†S, Mette & Persson, Karl Gunnar, 2010. "The gains from improved market efficiency: trade before and after the transatlantic telegraph," European Review of Economic History, Cambridge University Press, vol. 14(3), pages 361-381, December.
  • Handle: RePEc:cup:ereveh:v:14:y:2010:i:03:p:361-381_00
    as

    Download full text from publisher

    File URL: https://www.cambridge.org/core/product/identifier/S1361491610000109/type/journal_article
    File Function: link to article abstract page
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Banerjee, Anindya & Dolado, Juan J. & Galbraith, John W. & Hendry, David, 1993. "Co-integration, Error Correction, and the Econometric Analysis of Non-Stationary Data," OUP Catalogue, Oxford University Press, number 9780198288107.
    2. Kevin H. O'Rourke & Jeffrey G. Williamson, 2001. "Globalization and History: The Evolution of a Nineteenth-Century Atlantic Economy," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262650592.
    3. Irwin, Douglas A, 1988. "Welfare Effects of British Free Trade: Debate and Evidence from the 1840s," Journal of Political Economy, University of Chicago Press, vol. 96(6), pages 1142-1164, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Alexander Pütz & Pierre L. Siklos & Christoph Sulewski, 2019. "“Who pays the piper calls the tune” – Networks and transaction costs in commodity markets," CQE Working Papers 8819, Center for Quantitative Economics (CQE), University of Muenster.
    2. Martin Uebele & Daniel Gallardo-Albarrán, 2015. "Paving the way to modernity: Prussian roads and grain market integration in Westphalia, 1821-1855," Scandinavian Economic History Review, Taylor & Francis Journals, vol. 63(1), pages 69-92, March.
    3. Brunt, Liam & Cannon, Edmund, 2013. "Integration in the English wheat market 1770-1820," CEPR Discussion Papers 9504, C.E.P.R. Discussion Papers.
    4. Ganneval, S., 2016. "Spatial price transmission on agricultural commodity markets under different volatility regimes," Economic Modelling, Elsevier, vol. 52(PA), pages 173-185.
    5. Steinwender, Claudia, 2013. "Information Frictions and the Law of One Price: “When the States and the Kingdom became United”," CEPREMAP Working Papers (Docweb) 1314, CEPREMAP.
    6. Chilosi, David & Federico, Giovanni, 2019. "The effects of market integration during the first globalization: a multi-market approach," CEPR Discussion Papers 13818, C.E.P.R. Discussion Papers.
    7. repec:aea:aecrev:v:108:y:2018:i:3:p:657-96 is not listed on IDEAS
    8. Sharp, Paul & Weisdorf, Jacob, 2013. "Globalization revisited: Market integration and the wheat trade between North America and Britain from the eighteenth century," Explorations in Economic History, Elsevier, vol. 50(1), pages 88-98.
    9. Markus Lampe & Paul Sharp, 2015. "How the Danes discovered Britain: the international integration of the Danish dairy industry before 1880," European Review of Economic History, Oxford University Press, vol. 19(4), pages 432-453.
    10. Markus Lampe & Paul Sharp, 2014. "Greasing the wheels of rural transformation? Margarine and the competition for the British butter market," Economic History Review, Economic History Society, vol. 67(3), pages 769-792, August.

    More about this item

    JEL classification:

    • F1 - International Economics - - Trade
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • N7 - Economic History - - Economic History: Transport, International and Domestic Trade, Energy, and Other Services

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cup:ereveh:v:14:y:2010:i:03:p:361-381_00. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Keith Waters). General contact details of provider: https://www.cambridge.org/ere .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.