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

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