A Dynamic Model of Rational 'Panic Buying'

72 Pages Posted: 2 Nov 2020 Last revised: 22 Mar 2022

See all articles by Shunya Noda

Shunya Noda

University of Tokyo - Faculty of Economics; Vancouver School of Economics, University of British Columbia

Kazuhiro Teramoto

New York University (NYU), Department of Economics, Students

Date Written: October 29, 2020

Abstract

This paper analyzes panic buying of storable consumer goods accompanied by disasters. We develop a novel consumer-search model where consumers follow (S,s) inventory policies and a method to simulate the model against various types of fundamental shocks. We demonstrate that, even if agents are fully rational, an anticipated temporary increase in consumer shopping costs can trigger an upward spiral of hoarding demand and result in panic buying. Due to congestion externalities, panic buying causes misallocation and substantial welfare loss. Our simulation experiments discover factors relevant to the severity of panic buying. We also analyze the effectiveness of various policy measures.

Keywords: Hoarding; Panic buying; Search frictions; Congestion externality; Disaster; COVID-19; Heterogeneous agents model; Mean-field game

JEL Classification: C61, D15, D45, E21, H84, Q54

Suggested Citation

Noda, Shunya and Teramoto, Kazuhiro, A Dynamic Model of Rational 'Panic Buying' (October 29, 2020). Available at SSRN: https://ssrn.com/abstract=3721706 or http://dx.doi.org/10.2139/ssrn.3721706

Shunya Noda (Contact Author)

University of Tokyo - Faculty of Economics ( email )

7-3-1 Hongo, Bunkyo-ku
Tokyo, 113-0033
Japan

Vancouver School of Economics, University of British Columbia ( email )

6000 Iona Dr
Vancouver, British Columbia V6T 1L4
Canada

Kazuhiro Teramoto

New York University (NYU), Department of Economics, Students ( email )

19 W. 4th Street, 6FL
Department of Economics
NEW YORK, NY New York 10012
United States
10012 (Fax)

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