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Storage, Slow Transport, and the Law of One Price: Theory with Evidence from Nineteenth-Century U.S. Corn Markets


  • Andrew Coleman

    (Motu Economics)


This paper argues that localized price spikes should be a regular feature of competitive commodity markets. It develops a rational expectations model of physical arbitrage in which trade takes time, and shows that inventory management plays a crucial role in the way regional prices are determined. In equilibrium, arbitrageurs choose export quantities to ensure inventories in the importing center regularly fall to 0. They earn enough profits from high prices on these occasions to offset small losses at other times. An analysis of detailed data from Chicago and New York corn markets provides empirical support for the model. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Suggested Citation

  • Andrew Coleman, 2009. "Storage, Slow Transport, and the Law of One Price: Theory with Evidence from Nineteenth-Century U.S. Corn Markets," The Review of Economics and Statistics, MIT Press, vol. 91(2), pages 332-350, May.
  • Handle: RePEc:tpr:restat:v:91:y:2009:i:2:p:332-350

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    References listed on IDEAS

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    Cited by:

    1. Bennett, Max & Yuan, Yue, 2016. "On the Price Spread of Benchmark Crude Oils: A Spatial Price Equilibrium Model," MPRA Paper 76024, University Library of Munich, Germany.
    2. Christophe Gouel & Sébastien Jean, 2015. "Optimal Food Price Stabilization in a Small Open Developing Country," World Bank Economic Review, World Bank Group, vol. 29(1), pages 72-101.
    3. repec:spr:weltar:v:153:y:2017:i:4:d:10.1007_s10290-017-0286-0 is not listed on IDEAS
    4. Donald F. Larson & Julian Lampietti & Christophe Gouel & Carlo Cafiero & John Roberts, 2014. "Food Security and Storage in the Middle East and North Africa," World Bank Economic Review, World Bank Group, vol. 28(1), pages 48-73.
    5. Christophe Gouel & Madhur Gautam & Will J. Martin, 2016. "Managing food price volatility in a large open country: the case of wheat in India," Oxford Economic Papers, Oxford University Press, vol. 68(3), pages 811-835.
    6. Christophe Gouel, 2014. "Food Price Volatility and Domestic Stabilization Policies in Developing Countries," NBER Chapters,in: The Economics of Food Price Volatility, pages 261-306 National Bureau of Economic Research, Inc.
    7. 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.
    8. Santeramo, Fabio Gaetano & Lamonaca, Emilia & Contò, Francesco & Stasi, Antonio & Nardone, Gianluca, 2017. "Drivers of grain price volatility: a cursory critical review," MPRA Paper 79427, University Library of Munich, Germany.
    9. Hood, Harrison B. & Dorfman, Jeffrey H., 2014. "Testing Timber Market Linkages with a STAR Model with Housing Start-Controlled Transitions," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 169055, Agricultural and Applied Economics Association.
    10. Gábor Békés & Lionel Fontagné & Balázs Muraközy & Vincent Vicard, 2017. "Shipment frequency of exporters and demand uncertainty," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 153(4), pages 779-807, November.
    11. Steinwender, Claudia, 2014. "Information frictions and the law of one price: "When the States and the Kingdom became United"," WTO Staff Working Papers ERSD-2014-12, World Trade Organization (WTO), Economic Research and Statistics Division.
    12. 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.
    13. SAYAT R. BARONYAN & İ. İLKAY BODUROĞLU & EMRAH ŞENER, 2010. "Investigation Of Stochastic Pairs Trading Strategies Under Different Volatility Regimes," Manchester School, University of Manchester, vol. 78(s1), pages 114-134, September.
    14. Eric Overby & Jonathan Clarke, 2012. "A Transaction-Level Analysis of Spatial Arbitrage: The Role of Habit, Attention, and Electronic Trading," Management Science, INFORMS, vol. 58(2), pages 394-412, February.

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