In a disaster, demand changes. If you artificially keep prices from increasing, you'll have shortages. And likely those shortages are due to customers buying a ton of product and just selling it on the side at a higher price.
So have a max per person? Economic theory is nice and all, but limiting disaster supplies to wealthy people is not an acceptable answer.
There's a proven algorithm to allocate scarce resources without price-gouging.
That algorithm is called "first-come-first-served-with-quantity-limits".
[†] we can argue long and hard about morality of "first to grab wins" vs "deepest pockets win", but let's agree in most societies neither is seen as a virtue.
This doesn't even address the infrastructure and politics behind setting prices and managing limits. Changing price is faster, easier, and more efficient.
It also leaves out the political power involved. Someone in charge of setting limits probably gets to makes sure they, their family and friends all get resources before anyone else. You just trade the power of wealth for political power.
This in my mind becomes a trade off between helping the most people, and having less bias (because politics) towards who you help.
The solution is pretty obvious, require that companies don't raise prices during a disaster. That might mean they don't quite maximize profits, but it also gives everyone a shot regardless of their wealth. Anti price gouging laws are pretty common and are nearly universally popular.
No, it doesn't. It means there's no incentive for entrepreneurs to go to great lengths to increase the supplies of (e.g.) bottled water during a disaster.
It doesn't mean everyone gets what they need, it means only the first few people get what they need.
tl;dr left out of your economic models are things like good will and civic pride.
I'm not saying that absolutely everything should necessarily be allocated by price. Making it illegal to allocate things by price makes sense in the case of something like land whose supply is inelastic. If you want to say the price of land should be controlled and nobody should be allowed more than their fair share, okay; it's not like a price increase will allow more to be supplied. But clean water and airline seats have an elastic supply, and outlawing allocation by price means there will be less to go around.
What this meant was that people who weren't necessarily in all that much danger, or had plenty of time to evacuate via other means, used up all the tickets. But the ones that were really needy and couldn't use other evacuation means, E.g. pregnant women, were not even given the option of the higher price.
http://www.marketwatch.com/story/r-e-p-e-a-t----air-canada-o...
In the event of irregular operations, the supply of seats is somewhat elastic.
But, by making it "cheap" enough for the poor & needy to pay, you've effectively made it "cheap" for the poor and not needy to pay as well. The latter group being much larger and will probably drown out access for the former, so it's a lose-lose if you ask me.
I would imagine most people fall into this category during a crisis.
Access is "drowned out" for everyone ... equally. The alternative is that only the rich have access. Which is better? In both scenerios people die, except in one onnly one class of people die.
My point is there should be no "economic" model for private business in a natural disaster where lives are on the line.
The actual block hour cost for a 737-800 is a third that rate. eg. $3500/Hr.
For a small group, something like a CJ3 is more typical.
https://www.privatefly.com/us/private-jets/small-jet-hire/Ce...
$2676/Hr on PrivateFly
Here is the block hour cost for a variety of small airliners.
http://www.planestats.com/bhsn_2017mar
737-800 is $3500/Hr depending on the operator. $6785 per economy seat for a 2 Hour flight is outrageous.
That's precisely it, it's just a theory and it doesn't apply here.
How are they supposed to increase supply of bottled water during a category 5 hurricane?
Unfettered price increases may not be the best solution, but capping prices too low just creates different problems.
Not sure what the best solution is, though.
If water bottles were selling for 20 dollars each, and I were in an unaffected but relatively nearby area, I might load my truck with a couple thousand water bottles that I buy for 50 cents, drive for a day, and enjoy a big return. In this way, the market is extremely useful. People like me are motivated by profit incentives to move the resources that people in the disaster area need to them. This is because the water bottle market has a very low cost to enter.
Conversely, the airline market has a very high cost to enter. Even if I would like to take advantage of high prices, I can't get myself a passenger plane, necessary permits, agreements with airports, etc, in time to do anything about the hurricane. On the other hand, people with small private planes may be able to fly their planes down, and take on passengers, in a profitable way, and that may be an incentive for more of them to do so than would otherwise.
Same with gasoline. Price signals work.
http://myfloridalegal.com/pages.nsf/Main/5D2710E379EAD6BC852...
> Florida Statute 501.160 states that during a state of emergency, it is unlawful to sell, lease, offer to sell, or offer for lease essential commodities, dwelling units, or self-storage facilities for an amount that grossly exceeds the average price for that commodity during the 30 days before the declaration of the state of emergency, unless the seller can justify the price by showing increases in its prices or market trends. Examples of necessary commodities are food, ice, gas, and lumber.
You'll have shortages anyway. The idea here is that in a disaster it's immoral to ration essentials by wealth.
A man during Katrina bought 19 generators, drove 600 miles, and sold them for 2x his cost. I would argue his actions were moral and helpful. He was jailed for price gouging.
Of course! That's why we have government, and pay taxes, so that things like disaster relief can be executed without working about "economic incentives".
See health care. ducks
And yet
http://www.denverpost.com/2017/08/29/hurricane-harvey-canned...
I would say no, because it increases the total supply of water and allows those without wealth to get more since the people with wealth will spend it to get water from Joe Capitalist.
When you shame pricing based on market realities, known entities like grocery stores don't do it but unknown entities like random guy down the street will take advantage of the opportunity. And chances are he won't be paying taxes on his profit either.
And if somehow you are successful at stopping higher prices from being paid, you take all the profit out of rushing resources to the disaster zone. You can even reduce the flow of resources BEFORE the storm hits.
People also may not realize how scarce a resource is or will be in the price stays as low as it usually is. Prices SHOULD be going up when a storm is imminent.
High prices greatly increase the chances that products will be available even when scarce. And prices that are too low for market realities ensure shortages.
I, for one, would rather pay a higher price than not have access to the resource at all. Prices serve useful functions in the marketplace and we benefit most when everybody understands that.
We'd be far better off if we let the market function and instead give victims extra cash to get what they need.
Resources aren't rushed to disaster areas in response to profits - they're rushed in response to the disaster. See FEMA, USRC, etc.
And, no, resources aren't rushed to disaster areas if those that have to expend extra effort to do so will simply be punished.
I'd rather rely on those who've been delivering everything efficiently already than wait for the government to do it.
It's not clear to me that government doing this costs us less. Most of the cost is hidden away in the federal budget. At least when I am paying a high price for gas, I am paying for the actual cost of getting it to me, including paying for logistics.
Even if you want to stop something you consider perverse (price gouging), you have to do it with a market mechanism (price controls), but this is a failure mode of markets, not something you can band-aid while staying within markets.
And to emphasize the point: It isn't worthwhile to consider gouging a moral failure on the part of individual actors. Either they do it, or someone else hoards. You can call both despicable but that doesn't fix the economic pathology. Focusing on individual actions blinds one to the setting in which they take those actions.
Capitalism works because people are greedy, and it takes advantage of that.