Economics at your fingertips  

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

Ejrnã†s, Mette and Karl Gunnar Persson
Authors registered in the RePEc Author Service: Mette Ejrnæs

European Review of Economic History, 2010, vol. 14, issue 3, 361-381

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.

Date: 2010
References: Add references at CitEc
Citations: View citations in EconPapers (13) Track citations by RSS feed

Downloads: (external link) ... type/journal_article link to article abstract page (text/html)

Related works:
Working Paper: The Gains from Improved Market Efficiency: Trade Before and After the Transatlantic Telegraph (2006) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this article

More articles in European Review of Economic History from Cambridge University Press Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK.
Bibliographic data for series maintained by Keith Waters ().

Page updated 2020-03-31
Handle: RePEc:cup:ereveh:v:14:y:2010:i:03:p:361-381_00