19 November 2012

Price gouging and water rationing

I covered the institutional economics of Hurricane Sandy awhile back, but I did not think of the similarity between the debates over price gouging (see footnote *** in that post) and water pricing until listening to this excellent podcast.

Here's the simple case:
Some people call raising the price of products subject to higher demand "price gouging," but economists call it an efficient and fair way to allocate goods among people. 
Let me restate that:
Some people call raising the price of products water subject to higher demand "price gouging," but economists call it an efficient and fair way to allocate goods water among people.
Bottom Line: It's more fair to allocate economic (private) goods by price than by some political or engineering formula that does little to reveal how valuable the good is to people.

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