Reports
Discussion Papers
No.505 Understanding traders’ regional arbitrage: The case of rice traders in Antananarivo, Madagascar
by Yutaka Arimoto, Hisaki Kono, Tsilavo Ralandison, Takeshi Sakurai, Kazushi Takahashi
March 2015
ABSTRACT
Many
studies
find
that
agricultural
markets
in
developing
countries
are
poorly
integrated
spatially.
Traders’
regional
arbitrage
plays
a
key
role
in
integrating
markets
across
space.
We
investigate
the
performance
of
regional
arbitrage
and
the
associated
obstacles
for
rice
traders
in
Antananarivo,
Madagascar.
On
the
basis
of
a
trader-level
biweekly
survey
spanning
2012–2013,
we
find
that
traders
are
not
fully
exploiting
the
regional
arbitrage
opportunities:
most
of
them
fail
to
purchase
from
the
cheapest
district
and
are
paying
higher
prices
than
those
in
the
cheapest
district.
One
apparent
obstacle
is
obtaining
price
information
from
many
different
regions.
To
reduce
search
costs,
we
provided
regional
price
information
via
SMS
to
randomly
selected
traders,
but
found
that
this
had
a
null-effect
on
improving
arbitrage
performance.
Traders
tend
to
concentrate
on
trading
with
a
few
fixed
districts,
even
if
they
are
informed
about
cheaper
prices
in
other
new
districts,
because
they
worry
about
quality
uncertainty
and
the
trustworthiness
of
new
partners.
These
findings
suggest
that
not
only
transmission
of
price
information
but
also
issues
related
to
produce
quality
and
matching
prevent
the
performance
of
arbitrage
and
market
integration.
Keywords:
regional
arbitrage,
market
integration,
information
friction,
price
information,
search
JEL
classification:
L81,
O13,
Q13
Please note that discussion papers are works in various stages of progress and most have not been edited and proofread and may contain errors of fact or judgment. Revised versions of these papers may subsequently appear in more formal publication series. The views expressed in this publication are those of the author(s). The IDE does not guarantee the accuracy of the data included and accepts no responsibility for any consequences arising from its use.