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The welfare costs of price controls and rent seeking in a class experiment

Grace Finley, Charles Holt () and Emily Snow
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Grace Finley: US Council of Economic Advisors
Emily Snow: Boston Consulting Group

Experimental Economics, 2019, vol. 22, issue 3, No 9, 753-771

Abstract: Abstract There are two efficiency effects of price controls: an “output effect” measured by the standard welfare loss triangles, and an “imperfect selection effect” that arises when controls prevent price from excluding high-cost sellers or low-value buyers. Although not discussed in most textbooks, the imperfect selection effect can be as large as the standard Harberger triangle welfare loss in symmetric designs, as confirmed by a class experiment described in this paper. The experiment also permits an analysis of the ways random non-price allocations shift the relevant supply function, and the related effects of rent-seeking competition that can arise with price controls.

Keywords: Classroom experiment; Rent seeking; Price controls; Market efficiency; Veconlab (search for similar items in EconPapers)
JEL-codes: C92 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1007/s10683-018-9581-4

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