Gouging: Terrorist Attacks, Hurricanes, and the Legal and Economic Aspects of Post-Disaster Price Regulation

27 Pages Posted: 21 Sep 2005 Last revised: 22 Feb 2009

Geoffrey Christopher Rapp

University of Toledo College of Law

Abstract

Traditional law and economics has no place for price controls. Yet public support for anti-gouging legislation has led to the enactment of a variety of legal regimes to control price hikes following natural and man-made disasters such as hurricanes and terrorist attacks. This Essay provides an economic justification for such laws. First, the Essay surveys the existing models of anti-gouging legislation. Then, the Essay describes the traditional economic critique of price caps, a critique applied to laws that attempt to control post-disaster prices. Finally, the Essay argues that anti-gouging laws enhance economic efficiency by ensuring a functioning consumer market after the collapse of electronic payment systems on which the American economy now depends. The externalities of consumption in post-disaster environments mean that the costs of consumers forgoing needed products are not adequately captured by a reliance on market mechanisms. This analysis suggests that current anti-gouging laws should be restructured to include a more discrete focus on areas actually affected by physical damage from natural or man-made disasters.

Keywords: Price gouging, price control, hurricane, terrorism, homeland security, law and economics, katrina

JEL Classification: K00

Suggested Citation

Rapp, Geoffrey Christopher, Gouging: Terrorist Attacks, Hurricanes, and the Legal and Economic Aspects of Post-Disaster Price Regulation. Kentucky Law Journal, Vol. 94, p. 535, 2005-2006. Available at SSRN: https://ssrn.com/abstract=800745

Geoffrey Christopher Rapp (Contact Author)

University of Toledo College of Law ( email )

2801 W. Bancroft Street
Toledo, OH 43606
United States

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