Empirical detection and quantification of price transmission in endogenously unstable markets: The case of the global–domestic coffee supply chain in papua New Guinea

Abstract

Price transmission through global–domestic agricultural supply chains is a fundamental indicator of domestic market efficiency and producer welfare. Conventional price-transmission econometrics test for a theory-based spatial-arbitrage restriction that long-run equilibrium prices in spatially distinct markets differ by no more than transaction costs. The conventional approach is ill-equipped to test for price transmission when endogenously unstable markets do not equilibrate due to systematic arbitrage-frustrating frictions including financial and institutional transaction costs and biophysical constraints. We propose a novel empirical framework using price data to test for market stability ..