Is the Price Right? The Role of Economic Tradeoffs in Explaining Reactions to Price Surges

Julio Elias, Nicola Lacetera and Mario Macis

No 29963, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Public authorities often introduce price controls following price surges, potentially causing inefficiencies and exacerbating shortages. A survey experiment with 7,612 Canadian and US respondents shows that unregulated price surges raise moral objections and widespread disapproval. However, acceptance increases, and demand for regulation decreases when participants are prompted to consider economic tradeoffs between controlled and unregulated prices, whereby incentives from higher prices lead to additional supply and enhance access to goods. Moreover, highlighting these tradeoffs reduces polarization in moral judgments between supporters and opponents of unregulated pricing. Textual analysis of responses to open-ended questions provides further insights into our findings, and an incentivized donation task demonstrates consistency between stated preferences and real-stakes behavior. Although economic trade-offs do influence public support for price control policies, the evidence indicates that, even when the potential gains in economic efficiency from unregulated prices are explicit, a significant divide persists between the utilitarian views that standard economic thinking implies, and the non-utilitarian values held by the general population.

JEL-codes: C83 C91 D63 D91 I11 L50 Z1 (search for similar items in EconPapers)
Date: 2022-04
New Economics Papers: this item is included in nep-exp, nep-hpe and nep-reg
Note: EH PE PR
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