Thursday, 28 January 2010

Price gouging in Haiti

You will find many reports in the media suggesting that prices for many useful and necessary goods have jumped considerably since the earthquake in Haiti. I'm sure you will also find many reports saying that these price increases are examples of "price gouging" and that such activity is unethical and thus ought to be condemned, if not prosecuted.

One of the better responses to such reasoning comes from Michael Giberson at Knowledge Problem blog. He writes,
But I find it hard to condemn these actions, which generally appear to be pro-social commercial responses to abnormal social and economic conditions. Higher prices motivate more careful use of existing supplies as well as extraordinary efforts to secure additional supplies. Changing relative prices help guide the efforts of suppliers and merchants to the most vitally needed items. Both the incentive and information aspects of prices are critical to guiding decentralized responses to human needs in this rapidly changing situation.

The New York Times article observes that, “Haiti’s huge informal sector reacted faster to the quake than did established companies and banks. Outdoor markets like La Saline are already filled with goods from the countryside, including salt, cornmeal, fruits like mangoes and used clothing from the United States.” How fast would that informal sector have reacted if the government felt an obligation to enforce some notion of anti-price gouging policy?
Markets work, even in extreme circumstances, if you let them.

No comments: