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A Model of Spatial Arbitrage with Transport Capacity Constraints and Endogenous Transport Prices

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  • Andrew Coleman

Abstract

This article solves a high-frequency model of price arbitrage incorporating storage and trade when the amount of trade is limited by transport capacity constraints. In equilibrium there is considerable variation in transport prices because transport prices rise when the demand to ship goods exceeds the capacity limit. This variation is necessary to attract shipping capacity into the industry. In turn, prices in different locations differ by a time varying amount. Thus while the law of one price holds, it holds because of endogenous variation in transport prices. Copyright 2009, Oxford University Press.

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  • Andrew Coleman, 2009. "A Model of Spatial Arbitrage with Transport Capacity Constraints and Endogenous Transport Prices," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(1), pages 42-56.
  • Handle: RePEc:oup:ajagec:v:91:y:2009:i:1:p:42-56
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    File URL: http://hdl.handle.net/10.1111/j.1467-8276.2008.01183.x
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    Cited by:

    1. Eriko Miyama & Shunsuke Managi, 2014. "Global environmental emissions estimate: application of multiple imputation," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 16(2), pages 115-135, April.
    2. Beghin, John C. & Bureau, Jean-Christophe & Gohin, Alex, 2014. "The Impact of an EU-US TTIP Agreement on Biofuel and Feedstock Markets," Proceedings Issues, 2014: Food, Resources and Conflict, December 7-9, 2014, San Diego, California 197153, International Agricultural Trade Research Consortium.
    3. John C. Beghin & Jean-Christophe Bureau & Alexandre Gohin, 2017. "The Impact of an EU–US Transatlantic Trade and Investment Partnership Agreement on Biofuel and Feedstock Markets," Journal of Agricultural Economics, Wiley Blackwell, vol. 68(2), pages 321-344, June.
    4. Christophe Gouel, 2012. "Agricultural Price Instability: A Survey Of Competing Explanations And Remedies," Journal of Economic Surveys, Wiley Blackwell, vol. 26(1), pages 129-156, February.
    5. Lence, Sergio & Moschini, Giancarlo & Santeramo, Fabio Gaetano, 2017. "Threshold cointegration and spatial price transmission when expectations matter," MPRA Paper 80202, University Library of Munich, Germany.
    6. Andrew Coleman, 2008. "Storage Under Backwardation: A Direct Test of the Wright-Williams Conjecture," Working Papers 08_13, Motu Economic and Public Policy Research.
    7. Burke, William J. & Myers, Robert J., 2014. "Spatial equilibrium and price transmission between Southern African maize markets connected by informal trade," Food Policy, Elsevier, vol. 49(P1), pages 59-70.

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