Noisy Vertical Markets
Australian National University (ANU) - Australia South Asia Research Centre (ASARC); Crawford School of Public Policy
Hari K. Nagarajan
Indian Institute of Management Bangalore
IGIDR Working Paper
In vertical markets volatility at one level of the market may transmit itself to another level. This paper examines the linkages that exist between spreads at different levels of the market hierarchy in Indian rice markets. It highlights the behavior of spreads in the presence of information asymmetry. This causes spreads to overshoot their equilibrium values. Second, we model possible differences between the reaction to an upward revision of the spread from that to a downward revision. We also propose policy prescriptions such that the policy maker can target specific levels of the market verticality given an understanding of the process of transmission and the magnitude of noise trading.
Number of Pages in PDF File: 28
JEL Classification: C32, D43, Q13, Q18working papers series
Date posted: October 12, 2000
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