May 11, 2007


To do with the price of fish: How do mobile phones promote economic growth? A new paper provides a vivid example (The Economist, May 10th 2007)

YOU are a fisherman off the coast of northern Kerala, a region in the south of India. Visiting your usual fishing ground, you bring in an unusually good catch of sardines. That means other fishermen in the area will probably have done well too, so there will be plenty of supply at the local beach market: prices will be low, and you may not even be able to sell your catch. Should you head for the usual market anyway, or should you go down the coast in the hope that fishermen in that area will not have done so well and your fish will fetch a better price? If you make the wrong choice you cannot visit another market because fuel is costly and each market is open for only a couple of hours before dawn—and it takes that long for your boat to putter from one to the next. Since fish are perishable, any that cannot be sold will have to be dumped into the sea.

This, in a nutshell, was the situation facing Kerala's fishermen until 1997. The result was far from ideal for both fishermen and their customers. In practice, fishermen chose to stick with their home markets all the time. This was wasteful because when a particular market is oversupplied, fish are thrown away, even though there may be buyers for them a little farther along the coast. On average, 5-8% of the total catch was wasted, says Robert Jensen, a development economist at Harvard University who has surveyed the price of sardines at 15 beach markets along Kerala's coast. On January 14th 1997, for example, 11 fishermen at Badagara beach ended up throwing away their catches, yet on that day there were 27 buyers at markets within 15km (about nine miles) who would have bought their fish. There were also wide variations in the price of sardines along the coast.

But starting in 1997 mobile phones were introduced in Kerala. Since coverage spread gradually, this provided an ideal way to gauge the effect of mobile phones on the fishermen's behaviour, the price of fish, and the amount of waste. For many years, anecdotes have abounded about the ways in which mobile phones promote more efficient markets and encourage economic activity. One particularly popular tale is that of the fisherman who is able to call several nearby markets from his boat to establish where his catch will fetch the highest price. Mr Jensen's paper* adds some numbers to the familiar stories and shows precisely how mobile phones support economic growth.

As phone coverage spread between 1997 and 2000, fishermen started to buy phones and use them to call coastal markets while still at sea. (The area of coverage reaches 20-25km off the coast.) Instead of selling their fish at beach auctions, the fishermen would call around to find the best price. Dividing the coast into three regions, Mr Jensen found that the proportion of fishermen who ventured beyond their home markets to sell their catches jumped from zero to around 35% as soon as coverage became available in each region. At that point, no fish were wasted and the variation in prices fell dramatically. By the end of the study coverage was available in all three regions. Waste had been eliminated and the “law of one price”—the idea that in an efficient market identical goods should cost the same—had come into effect, in the form of a single rate for sardines along the coast.

This more efficient market benefited everyone.

But Labour and the Democrats have decided they're tired of efficient markets?

Posted by Orrin Judd at May 11, 2007 7:20 AM

". . . phones do this without the need for government intervention." The left is terrified of ordinary people fending for themselves.

Posted by: erp at May 11, 2007 6:58 AM

Right. Now let us ponder why they are so terrified.

It is quite simple, really. Power it is they crave. Tolkien had their number. They cannot wield the apparatus of state coecion to dominate all life if life is getting along very well without their ministrations.

Thus markets terrify them. Technology terrifies them. Cell phones, computers, yes, automobiles--all the things by which we transcend time and space--are ultimately "undemocratic," the way the left misuses that term.

Posted by: Lou Gots at May 11, 2007 10:03 AM

I don't think technolgy terrifies them, irrelavancy terrifies them. They are more than happy to use technology to propel the reach of government, only lazy workers impead them there.

Posted by: Perry at May 11, 2007 2:40 PM

The left is terrified that the great unwashed will wake up, jump in the shower and get on with their lives sans their interference and they'll be left without a power base. The wagging finger wags, but there's nobody in the forest to feel the breeze.

Posted by: erp at May 11, 2007 3:34 PM

No doubt cell phones increase effeciency...however not in this case as CB radios have been around for some time

Posted by: Brian at May 12, 2007 4:26 AM