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Category — New Jersey

“Price Gouging” Laws: Ten Research Areas in the Economics of Unintended Consequences

For most economists, the workings of “price gouging” laws are simple and predictable. Binding price caps in emergencies create shortages on the most urgently needed goods and services during emergencies.

The recommended policy reform is simple, too: stop harming citizens when they can least afford it!

It would seem to be an open-and-shut case, a slam dunk for economics to inform the electorate and thus policymakers to avoid such folly. Remember the gasoline lines and natural gas shortages of the 1970s? Perhaps no simple event has convinced mainstream economists that price controls have bad consequences despite intention.

Defenders of economic liberty have an even easier argument: merchants ought to be free to ask what ever price they like for the goods and services they offer. Price gouging laws unjustly limit that freedom and government ought not to do that.

Yet, some 34 states and the District of Columbia have laws that impose price caps on urgently needed goods and services during emergencies. The easy arguments of free-market economists are not winning policy debates.

One response is to make it easier for the non-specialist to understand why price gouging laws cause more harm than good, as with Matt Zwolinski’s short video on price gouging for LearnLiberty.org. My own price gouging essay in Regulation magazine might serve a similar purpose for the non-specialist policymaker audience.

A complementary line of work digs deeper into the economics of price gouging in an effort to trace out the consequences of the laws. Defenders of price gouging prohibitions are comforted by their good intentions and a vague sense that somehow emergencies would be worse if prices were freer to adjust. Careful empirical and theoretical work on the consequences of price gouging laws can help undermine this false comfort.

In that spirit, here are ten researchable price gouging topics for economists. [Read more →]

December 11, 2012   2 Comments