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The Role of Transportation Costs in the Economics of Commodity Markets
Author(s) -
Roehner Bertrand M.
Publication year - 1996
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.2307/1243707
Subject(s) - economics , arbitrage , commodity , econometrics , volatility (finance) , microeconomics , commodity market , financial economics , finance
Transportation costs still play an important role in the economics of commodity markets. In this paper I present a theoretical framework aimed at describing spatial arbitrage under uncertainty; I analyze the effect of changing transport costs on different, yet related, variables: volume of trade, volatility of prices, and levels of spatial price differentials. As a tribute to Enke and Samuelson the model is referred to as the stochastic Enke‐Samuelson model. It provides predictions for variables (such as price volatilities or correlations) which cannot be defined in the deterministic framework of the standard spatial price equilibrium model. The statistical tests display a convergent array of evidence in favor of the model.

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