Price and Nonprice Information Frictions in Regional Arbitrage: The Case of Rice Traders in Antananarivo, Madagascar

Yutaka Arimoto, Hisaki Kono, Tsilavo Ralandison, Takeshi Sakurai and Kazushi Takahashi

Economic Development and Cultural Change, 2019, vol. 67, issue 2, 273 - 313

Abstract: Traders’ arbitrage is crucial for regional market integration. We investigate the patterns of regional arbitrage of rice traders in Antananarivo, Madagascar. On the basis of a trader-level biweekly survey, we find that most traders do not buy rice at the lowest price including observed transportation costs. Random provision of regional price information, intended to reduce search costs, did not improve arbitrage performance. Traders continue trading with districts that they are used to because they worry about quality uncertainty and the trustworthiness of new partners. These findings suggest that nonprice information frictions are important obstacles of regional arbitrage and market integration.

Date: 2019
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