Hurricane season brings a spate of blog posts on price gouging. This year Michael Munger at EconoLog has weighed in: "The Political Economy of Wishful Thinking". Over at Division of Labor we have E. Frank Stephenson: "Charley and "Price Gouging" ", Chuck Skipton: ""Unconscionable acts" in the sunny state of Florida:", and G. Dirk Mateer: "From CNN on gouging"
There were a number of posts last year. I did one ("The pros and cons of price gouging") that has links to others. This past March Kevin Brancato at Truck and Barter posted on anti-price gouging legislation in Virginia: "Anti-Price Gouging Law in VA".
The anti-price gouging legislation raises three general questions: (1) What impacts do these laws have on efficiency; (2) What is the source of the moral intuition that makes people think of price increases during or after a hurricane are unfair and wrong (as opposed to simply unpleasant); (3) What is the political economy of these things - what determines adoption and program characteristics?
The theoretical answer to question (1) is covered pretty well in the posts. The answer to the resource allocation question seems to be that non-price rationing will be substituted for price rationing. Non-price rationing is likely to involve higher transactions costs than price rationing. Available resources will be used in sub-optimal ways to a greater extent than otherwise. It will take longer for needed supplies to enter the affected region. The cost of government's response to the disaster will be greater than otherwise, because it will incur costs to enforce the price control, and may be expected to intervene to help deal with price control related supply shortages.
(Last year, Tyler Cowen introduced a different dimension to the discussion when he wondered why there wasn't more price gouging during Hurricane Isabel, despite the absence of legislation: "I survived hurricane Isabel, but couldn't buy a flashlight or the right size batteries, the night before the storm was to come. Merchants let supply run out rather than raise the prices...")
The existence of these laws may affect homeowner and business behavior before a disaster. (Skipton notes that, "The state of Florida also, conveniently, defines what is meant for the price of a commodity to be 'unconscionable' as a price that possesses 'a 'gross disparity' from the average price of that commodity during the 30 days immediately prior to the emergency. ' " Does this have implications for pricing decisions just prior to hurricane season?)
The posts (mine included) address the theoretical efficiency implications, but don't generally deal with the empirical literature (if there is any) on gouging laws. For example, do these laws actually significantly slow private sector supply responses? The Tyler Cowen post cited above implies that certain types of merchants will resist raising certain types of prices. This should affect the efficiency implications of a price gouging law.
The blogs don't generally deal with the last two questions either. Why do we think the price increases are unfair? Why will many of them think the fairness issue trumps the resource allocation issue? Who gains and who loses, and how do transactions costs affect the ability of the different groups to organize to pursue their interests politically?
Wednesday's New York Times has an anthology of Florida price gouging anecdotes, prepared by Joseph Treaster: "With Storm Gone, Floridians Are Hit With Price Gouging"
"...Under Florida law, each proven case of price gouging carries a penalty of $1,000; each case of deceptive business practices carries a penalty of $10,000 except when the victim is over 60, in which case the penalty rises to $15,000. The complaints began to trickle in as the storm was approaching and a few came in immediately afterward. But now the pace is picking up, said Sara Kinsey, who has been working late into the night answering the attorney general's complaint hot line.
She said she had heard from a man who said he was told that the new price for a small household generator was now $2,000, up from about $250.
Many of the complaints have been for two necessities: bottled water and ice. But prices have also jumped for construction work and construction materials, and the authorities expect more of that as the recovery stretches on.
Janet Snyder, a pharmacy technician in Cape Coral, said several men in two pickup trucks spotted her roof damage and offered to lay down a temporary covering of plastic sheeting. They wanted $600, about four times what she figured was the right price, based on 15 rolls of plastic that usually sell for $10 each..."
Skip Sauer points to a gouging blog post (by Brenden Koerner) that I missed in " 'The man out to end us had a hurricane business' ".