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> Why is the non-price way of rationing better than rationing based on who is willing to pay the most? It's not. But rationing by price has little advantage if

• sokoloff 10y ago
  I'd argue that higher prices also mean the resources are consumed by those with the greatest need (as demonstrated by willingness to pay). Take another example. After Katrina hit, some stores got investigated for "gouging" on water. Obviously, water is a necessity of life, post-Katrina municipal water supplies were unavailable in many areas. Now, imagine that it was selling for $1/gallon two weeks prior to Katrina. What's the "best" price for the water to sell one day after Katrina? $1/gallon will likely yield rampant hoarding and scarcity of water for someone who might need it. Allowing the price to float will ensure that someone who really needs water will be able to buy it, though the price might be $5/gallon. I'd rather have thirsty people paying $5/gallon and drinking clean water than having a few AHs having hundreds of gallons of surplus water and no water available for sale. This is how I view rent control. This would also serve as a strong pull signal to get more water into the area, but I suspect that was already underway.
  • alistairSH 10y ago
    Allowing the price to float will ensure that someone who really needs water will be able to buy it That isn't going to be true in the extreme. Three people need water. Two are wealthy, one is not. The two wealthy buyers bid up the price to the point the non-wealthy buyer is priced out o the market. Without some for of rationing (or a change in supply), the non-wealthy buyer dies from dehydration.
  • pash 10y ago
    Yes, you're right, more or less. (And this is the reason I edited my post to claim "little advantage" rather than "no advantage" from increased prices, possibly after you replied to it.) But analyzing the effect you've described is much more difficult than analyzing the effect of price increases in a market in which supply is not artificially constrained: some people have more or less money than others, and are more or less ready to spend it on this or that, for various reasons. And it is not nearly as straightforward to say that there will be a social benefit (in whatever sense you prefer) in letting the highest bidder claim a resource when the proceeds will go fully into someone's pocket rather than when they are likely to lead to higher production of the resource, and thence to an obviously greater social benefit from its higher consumption. Of course, I expect that you are right in at least the sense you meant: in the presence of a constraint on supply, the price mechanism will still broadly incentivize people who derive a greater benefit from consuming the resource actually to consume it: higher rents will mean more tech types in the Bay Area. I must point out here that nothing happens in isolation. Higher rents in the Bay Area will incentivize employers to move jobs elsewhere, all else equal. (I have seen several instances of this is my home, Kansas City, which is becoming a popular place to park back-office jobs for San Francisco firms of national scope.) And, yes, providing that incentive to move out is a good thing, relative to the theoretical alternative of paying higher rents without that option, and consequently transferring resources to property-owners with no net social benefit. But it's still a poor alternative to letting higher prices do what they want to do in the absence of artificial constraints: increase supply of a resource whose higher consumption benefits society on net. Still, if you want to limit development and push people to move to Kansas City because San Francisco's rents are too damn high, please, do. It's a much more appealing place than costal ignorance would lead you to believe, and we will welcome the newcomers.
• tuna-piano 10y ago
  Thanks for the book recommendations. Obviously, I haven't read them yet, but I think my next point will still be valid. In situations of natural fixed supply, think real estate in times square, water after Katrina, rare collectors items - the price is still extremely important for rationing. And the price does lead to the highest value activities performed. For example, in times square, you see mass market wide popularity businesses - you don't see niche computer parts stores (which you might if rent was capped at $500 per store per month). Nothing to do with NIMBY. In this case, if rent control was established, people that would be willing to commute from further away might end up living closer, while those who want to pay more to commute less may be forced to live further away. Exactly the sub-optimal economic situation.