How the Mobile Phone brought down the price of Fish

The Economist summarises Robert Jensen's "The Digital Provide: Information (technology), market performance and welfare in the South Indian fisheries sector”'

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. Fishermen's profits rose by 8% on average and consumer prices fell by 4% on average. Higher profits meant the phones typically paid for themselves within two months. And the benefits are enduring, rather than one-off. All of this, says Mr Jensen, shows the importance of the free flow of information to ensure that markets work efficiently. “Information makes markets work, and markets improve welfare,” he concludes.

Mr Jensen's work is valuable because studies of the economic effect of mobile phones tend to be macroeconomic. A well known example is the finding in 2005 by Leonard Waverman, of the London Business School, that an extra 10 mobile phones per 100 people in a typical developing country leads to an additional 0.59 percentage points of growth in GDP per person. (He recently repeated this earlier study using a more elaborate model and found that an extra 10 percentage points in mobile-phone penetration led to an extra 0.44 percentage points of growth, a difference he says is not statistically significant.)

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