Thursday, May 11, 2006

Econbrowser :: Congressionally mandated gas shortages

One of the common complaints I hear from noneconomists is, why should the price of gasoline go up as soon as there is any news of a disruption in oil flowing from somewhere like Nigeria, when the gasoline in the pipeline and the station's tanks have already been bought and paid for by the company at a lower price?

Why, indeed? The answer is [click here to continue reading]
Professor Hamilton has helpfully provided photographic evidence of the resulting phenomenon.

We can be sure of one thing. There is no shortage of hot air on Capitol Hill.


Anonymous Anonymous said...

Dear Emirates Economist, how would you compare price gouging in the petroleum scenario to that of rents going up in Dubai? Do you thinn the high demand here makes economic sense to raise rents or keep them steady? Thanks in advance for your analysis.

12:12 PM  
Blogger John B. Chilton said...

Even in catastrophes I see the firms who raise prices as heroes. Suppose there is a power failure and the demand for ice increases. If the price of ice is held low, then probably the guys who want to keep their beer cold will get to store and grad the limited supply before the family that needs to keep the baby's formula from spoiling.

In the case of rent on housing the only issue that I see intervening is when you have agreed on a fixed rent for a certain period. When rents in the market go up your landlord would like to break the contract that he or she voluntarily entered into.

Let's assume they can't simply break the contract. What do they do? They find ways to be unpleasant - being less responsive on repairs, enforcing rules on technicalities they didn't enforce before, renting to neighboring units to people they know you will find unpleasant. These are behaviors you can anticipate entering into such a long term contract, but there's not much you can do at low cost to prevent it. That's not gouging; that's malfeasance allbeit very difficult to prove to a third party (even if a third party enforcer existed).

There may be a demand for rent insurance (a guarantee that rent won't increase over a certain period of time) and supply of it, but it is very difficult to enforce delivery of such a promise. Buyer beware.

Does it make sense for the government to impose rent control? First, you'll have the same set of issues as with voluntary fixed price contracts stated above. Second, take a look at New York City under rent control. In my opinion it was more damaging to the housing stock than what the Germans did to London.

Most economists, if they say what they believe, do not become more popular.

If Dubai has become more expensive take your issue to your employer. Make sure your employer knows that being here is not as attractive as it used to be. Make sure your employer knows you have options. Pray that the government does not freeze salaries.

12:48 PM  

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