Market Failure and Natural Disasters

In Gouging: Terrorist Attacks, Hurricanes, and the Legal and Economic Aspects of Post-Disaster Price Regulation, Professor Geoffrey Rapp reviews anti-gouging laws and the economic objections to such regulations. He argues that despite the fact that traditional economic arguments oppose anti-gouging laws, economic justifications nevertheless exist for such post-disaster laws, including the possible failure of electronic payment systems and behavioral insights about economic agents.

This article first reviews Professor Rapp’s conclusion that economic arguments offer a decidedly negative view of anti-gouging laws. It then analyzes and critiques Professor Rapp’s economic defense of such regulations by (1) applying a standard economic concept—elasticity—and highlighting the role of the market as a discovery process and (2) addressing behavioral economics’ assumptions about individuals’ responsiveness to price changes. Finally, this article offers recommendations concerning such laws.

Find the article on David Skarbek's website.