Coordination in Disaster: Nonprice Learning and the Allocation of Resources after Natural Disasters

39 Pages Posted: 26 May 2016 Last revised: 26 Jan 2017

See all articles by Daniel Sutter

Daniel Sutter

University of Oklahoma

Daniel J. Smith

Middle Tennessee State University - Department of Economics and Finance

Date Written: May 25, 2016

Abstract

Most economists agree that the price system offers the best method for allocating scarce resources among competing ends. Yet, churches, nonprofits, governments, and corporations in disaster-stricken communities, often under voluntary or mandated price freezes, must often rely on nonprice responses to meet short-term, localized shifts in demand. Evidence suggests that the private sector outperforms the public sector at this task. This paper explores how private sector organizations, both nonprofit and for-profit, learn about and respond to community needs in the aftermath of disasters. We explain and demonstrate how organizations observe credible signals of shifts in demand without the aid of prices. Our findings expand our understanding of why public sector disaster recovery efforts tend to be less effective than private sector efforts. We also find that price gouging laws have additional negative consequences beyond the standard economic account.

Keywords: Nonprice coordination, natural disasters, in-kind donations, recovery, price gouging

JEL Classification: H84, P11, Q54

Suggested Citation

Sutter, Daniel and Smith, Daniel J., Coordination in Disaster: Nonprice Learning and the Allocation of Resources after Natural Disasters (May 25, 2016). Review of Austrian Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2784408 or http://dx.doi.org/10.2139/ssrn.2784408

Daniel Sutter

University of Oklahoma ( email )

307 W Brooks
Department of Economics Office Hest 329
Norman, OK 73019
United States
405-325-2861 (Phone)

Daniel J. Smith (Contact Author)

Middle Tennessee State University - Department of Economics and Finance ( email )

MTSU Box 27
1301 E. Main St.
Murfreesboro, TN 37132-0001
United States

HOME PAGE: http://www.danieljosephsmith.com/

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