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"Grain Transportation Canada History."
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COMMODITY MARKET DYNAMICS AND THE JOINT EXECUTIVE COMMITTEE, 1880-1886
Using weekly spot and future commodity prices in Chicago and New York, we construct expected transportation rates for grain between these two cities, expected inventory levels in New York, and realized errors in the expectations of such variables. We incorporate these exogenous commodity market dynamics into Porter's (1983) structural modeling of the Joint Executive Committee Railroad Cartel. As in Porter, we model marginal cost as a parametric function of (instrumented) output, among other factors. Unlike Porter, we model pricing over marginal cost as a nonparametric function of a set of variables, which include expectations of deterministic demand cycles and cartel stability. We estimate the pricing and demand equation simultaneously and semiparametrically. Our estimated weekly markups during periods of cartel stability are shown to reflect optimal collusive pricing over deterministic business cycles, as modeled in Haltiwanger and Harrington (1991 ). Periods of cartel instability are proven to be triggered by realized mistakes in expectations of New York grain prices.
Journal Article
The gains from improved market efficiency: trade before and after the transatlantic telegraph
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.
Journal Article
Railroads and Price Discrimination: The Roles of Competition, Information, and Regulation
I evaluate railroad price discrimination in three periods: 1870–1886, before the passage of the Interstate Commerce Act; 1945–1975, when rates were regulated but railroads faced extensive intermodal competition; and 1980–2010, after the passage of major regulatory reforms. While price discrimination was widespread in each period, the specific practices varied as the nature of competition, regulation, and the information available to decision-makers changed. The Act focused heavily on price discrimination, and limited some practices while encouraging others. One major weakness of the Act was the restrictions that were imposed on pricing practices that could lead to cost reductions and productivity improvements.
Journal Article
Feeding the British: convergence and market efficiency in the nineteenth-century grain trade
This paper traces the evolution of the international market for wheat, from an emerging market structure after the repeal of the corn laws to a mature market characterized by efficient arbitrage after the introduction of the transatlantic telegraph and the growth of trade. Efficiency is documented using traditional price gap accounting as well as error correction modelling. Markets which traded directly with each other as well as markets which did not trade with each other were integrated. The traditional bilateral focus in market integration studies has been extended to a multivariate approach, which generates new insights into the pattern of diffusion of price shocks in the international economy. Shocks in the major importing nation, Britain, dominated in the emerging market phase, while shocks in the major exporting economy, the United States, dominated international price movements at the end of the nineteenth century.
Journal Article
STORAGE, SLOW TRANSPORT, AND THE LAW OF ONE PRICE: THEORY WITH EVIDENCE FROM NINETEENTH-CENTURY U.S. CORN MARKETS
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.
Journal Article
Steers Afloat: The North Atlantic Meat Trade, Liner Predominance, and Freight Rates, 1870–1913
Meat transformed North Atlantic shipping, leading to dominance of liners and changed the economics of freight rates. Management coordination of meat shipment led to concentration in shipping. Only liner companies could provide specialized ships with the regularity needed and they dominated North Atlantic shipping. The cargo capacity of cattle ships, beyond that used for animals, lowered freight rates on grain below levels that would otherwise have prevailed. The berth rate on wheat from New York to Liverpool was most affected. Consequently, this readily available freight rate can be potentially misleading as an indicator of ocean shipping developments.
Journal Article
Mind the gap! Transport costs and price convergence in the nineteenth century Atlantic economy
The conventional view asserts that sharply falling transport costs practically closed the transatlantic price gap for grain by the end of the nineteenth century. This article challenges that view on the basis of an analysis of a new data set of weekly wheat prices and freight costs from New York to UK markets. Although transport costs fell, the fall was neither sharp nor dramatic. The extent of the decline in real terms is very sensitive to the choice of deflator. It is argued that if you are assessing the trade-inhibiting effect of transport costs, the ‘freight factor’ approach, using the price of the transported good as deflator, is the appropriate one. Port charges, insurance and marketing costs also fell by the same modest rate and since these costs were almost as large as transport costs, the price gap remained substantial. One implication is that we need to look elsewhere for the causes of the dramatic increase in New World grain exports.
Journal Article