LT Week 1 Flashcards
Motivation
The Digital Provide: Information (Technology), Market Performance, and Welfare in the South Indian Fisheries Sector (Jensen, 2007)
To explore how do improvements in infromation impact market performance and welfare; the potential value of information and communication technologies (ICTs) for economic development
Special settings
The Digital Provide: Information (Technology), Market Performance, and Welfare in the South Indian Fisheries Sector (Jensen, 2007)
In Kerala, where fishing is an important industry, mobile phone service was gradually introduced from 1997 and by 2001 over 60% were using it to coordinate sales
Theory
The Digital Provide: Information (Technology), Market Performance, and Welfare in the South Indian Fisheries Sector (Jensen, 2007)
“ICTs may help poorly functioning markets work better and thereby increase incomes and/or lower consumer prices
Two principles underpin functioning of the market economy:
* - First Fundamental Theorem of Welfare Economies (i.e. competitive equilibria are Pareto efficient);
* - Law of One Price (i.e. the price of a good should not differ between any two markets my more than the transport costs between them)”
Fishermen pay a cost to learn the daily price in each market. With perfect info, fishermen sells where prices are highest, net of transportation costs. Reduction in search costs means fishermen are closer to enaging in optiml arbitrage. Fish is alloctae dmore efficently, reduces dispersion between prices so welfare gain.
Empirical design
The Digital Provide: Information (Technology), Market Performance, and Welfare in the South Indian Fisheries Sector (Jensen, 2007)
“The paper exploits region-by-region rollout of mobile phone coverage in the Indian state of Kerala
There was no pre-existing differential trend in market outcomes across regions and no other factor could have influenced outcome changes differently across regions
Two towns with identical number of fishermen. Each fisherman’s catch (x) is a random variable with an identical distribution across individuals and depends on the density of fish (d). Each zone can be in either high or low density state. On observing their own catch, each fisherman updates their assessment of the state of their catchment zone; a higher catch indues to switch to non-local market despite paying the transportation costs due to higher expected gain in profits for an expected price difference. In a high-density state, greater supply will reduce significantly price dispersion in a given market
There is also a search technology, where for a cost, fishermen can learn about the catch in both zones and avoid unprofitable switching; it is purchased up to the point where the expected gain from arbitrage equals the cost of search
Waste arises when the maximum quantity demanded is less than the total catch
To measure welfare:
Producer welfare - changes in profits (fixed costs don’t change and inelastic supply)
Consumer welfare - changes in consumer surplus from an estimate of the consumers’ demand curve (pre- and post-mobile) and consumer retail prices”
diff and diff
If not staggered, all effect captured by time fixed effects.
Data
The Digital Provide: Information (Technology), Market Performance, and Welfare in the South Indian Fisheries Sector (Jensen, 2007)
“Data come from weekly surveys of fishermen in Kerala’s three northern districts from 1997 to 2001
Rapid spread of mobile phones, with a penetration rate reaching 60-75% in around 20 weeks
Emperical analysis broken into four time periods:
- t0 for no mobile phones
- t1 for mobile phones in region
- t2 in region 1 and 2
- t3 in all 3 regions”
Panel data
Key findings
The Digital Provide: Information (Technology), Market Performance, and Welfare in the South Indian Fisheries Sector (Jensen, 2007)
“30-40% of fishermen on average start selling outside their local market despite still fishing in their own zone
The addition of phones results in a decline in the price spread (from 7.5 to 2); price dispersion falls from 62-69% to 14% or less; the incidence of waste declines to almost zero
The regression results that largely mirror those
Before mobile phones the law of one price was violated in 44-47% of cases, but after it reduces to 3-5%
Mobile phones increased quantity sold by 23kg per day, resulting from decline in waste
Shows an increase in average profits of ~9%; increase in profits for both fishermen with and without phones, so positive externality effect”
Interpretation / policy implications
The Digital Provide: Information (Technology), Market Performance, and Welfare in the South Indian Fisheries Sector (Jensen, 2007)
“Information makes market work and markets improve welfare. Such technology can increase earnings, which, in turn, can lead to improvements in health and education, etc.
Private sector initiatives: sustainable in the long-run as both parties benefit: supplier and customers (unlike government or NGO projects)”
Motivation
Railroads of the Raj: Estimating the Impact of Transportation Infrastructure (Donaldson, 2018)
How large are the benefits of transportation infrastructure projects and what explains these benefits
Theory
Railroads of the Raj: Estimating the Impact of Transportation Infrastructure (Donaldson, 2018)
General equilibrium Ricardian trade model with many regions and many commodites where trade occurs at a cost. Regions have incentives to trade in order to exploit comparative advantage. Producers can sell more of what they are best at producing. Model delivers four key predictions which are taken to data set on railway expansion and economic activity in Indian districts. Trade enables specialisation but trade costs drive wedge between the proce of same goods in different regions. Railways reduce costs
Special settings
Railroads of the Raj: Estimating the Impact of Transportation Infrastructure (Donaldson, 2018)
Building of the vast network of railroads in colonial India from 1853 to 1930 by the British government
Data
Railroads of the Raj: Estimating the Impact of Transportation Infrastructure (Donaldson, 2018)
“Archival data from colonial India
The British government collected detailed records of economic activity throughout India in this time period
Panel district level (235) dataset on prices, output, daily rainfall, interregional and international trade in India with annual figures”
Empirical design
Railroads of the Raj: Estimating the Impact of Transportation Infrastructure (Donaldson, 2018)
“Four-step empirical analysis:
1. Inter-district price differences are equal to trade costs: allows Donaldson to estimate trade costs and to test whether railways reduced the cost of trading in India
2. Fixed bilateral trade costs should reduce bilateral trade flows: data allows Donaldson to test whether railroad-driven reductions in trade costs increase bilateral trad flows
3. When a district is connected to the railway network, its real income increases: Donaldson finds that railroad access raises real income by 16%
4. Impact of railroad on welfare in a district is captured by its impact on one endogenous variable, the share of that district’s expenditure that it sources from itself: regress real income on this sufficient statistic (calculate using paramteres from empirical steps 1 and 2) alongside regressors from empirical step 3”
Key findings
Railroads of the Raj: Estimating the Impact of Transportation Infrastructure (Donaldson, 2018)
“1% increase in effective distance increases salt price at destination by 8.8%
The lowest-cost route measure is estimated to reduce bilateral trade with an elasticity of -1.603
In the average district, the arrival of railroad is associated with a rise in income of over 16%; show that there is no bias due to endogenous railroad placement (military motivations were perhaps… XXX)
Railroad dummy is statistically significant, implying that a little over half of total impact of railroads estimated can explained by enhanced opportunities for comparative advantage”
Interpretation / policy implications
Railroads of the Raj: Estimating the Impact of Transportation Infrastructure (Donaldson, 2018)
“Railroads reduced the cost of trading, reduced inter-regional price gaps, and increased trade volumes
For future research: how transportation infraastructure projects can smooth away the effects of local weather extremes on local well-being”
