Working Paper: CEPR ID: DP8521
Authors: Péter Foldvári; Bas van Leeuwen; Jan Luiten van Zanden
Abstract: Price volatility, reflecting the ability to absorb exogenous supply- or demand shocks, is an important dimension of market performance. In this paper we present a model to study the factors determining the price volatility of markets of basic foodstuffs in pre industrial societies. This model is used to explain the development of price volatility on markets in countries around the Mediterranean between 580 BC and 1800 AD. This is the region for which we have the oldest evidence of functioning markets (from Mesopotamia), so that we can track their development in time over a period of more than 2000 years. We find a break in market performance: medieval markets had a much lower level of volatility than ancient markets--a fact we try to explain within our model. Moreover, we suggest that this reduction in price volatility may have had important consequences for the economic behavior of farmers: price variability had to be reduced to the level that we find for the post-1000 period to induce farmers to specialize.
Keywords: economic history; market performance; market prices; Mediterranean
JEL Codes: D40; E30; N13; N15; O13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| medieval markets (N93) | lower price volatility (G13) |
| reduction in transport and transaction costs (F12) | lower price volatility (G13) |
| lower price volatility (G13) | predict market prices more accurately (G17) |
| predict market prices more accurately (G17) | facilitate specialization in production (L23) |
| decreased transaction costs (D23) | increased market efficiency (G14) |
| increased market efficiency (G14) | lower price volatility (G13) |
| structural differences in urban systems (R12) | persistent high volatility in the Middle East (N15) |