One of the main themes of You Can Hear Me Now is that cell phones give both producers and consumers much better pricing information and thus help create fairer and more efficient markets. Much of the evidence in support of this theory is anecdotal, and most of the rgiorous academic support is at the macro level. For example, I cite Leonard Waverman of the London Business School and his econometric “proof” that adding 10 phones per 100 in a developing country adds .6 points to annual GDP — i.e., it will rise from 4% to 4.6%.
An upcoming paper by Harvard’s Robert Jensen (The Digital Provide: Information (technology), market performance and welfare in the South Indian fisheries sector, to be published in the Quarterly Journal of Economics in August) looks at the impact of cell phones at the micro level — that is, how have cell phones affected the economic gains of fishermen in Kerala, India.
As reported in To do with the price of fish (The Economist, May 12, 2007), Jensen studies fishermen in several villages before and after cell phones were introduced, beginning in 1997. (This, of course, is what econometric research tries to do — simulate change while holding all other factors equal.) Before phones, fishermen late to their local market would find it oversupplied and have to dump some or all of their catch for lack of buyers. Once phones were introduced, they could shop amongst other markets along the coast, and bring their supply to meet the demand. Over time, this reduced waste and smoothed prices, leading to the Law of One Price. Fishermen’s profits increased by 8%, and consumer prices have dropped by 4%. Yes, a win-win — except, of course, for the middle man, who has had to reduce payouts to reflect an efficient market.