 Stockpiling and Shortages (the “Toilet Paper Paper")No 2021-2, Working Papers from University of Alberta, Department of Economics Abstract: Widespread stockpiling of everyday household items (e.g., toilet paper) occurred in the wake of the Covid-19 pandemic, resulting in shortages of these items in stores. Both phenomena reinforce each other: The expectation of shortages causes stockpiling behavior, which in turn amplifies the shortages, which in turn encourages more stockpiling. In this paper, I examine this feedback loop. In the model, households want to consume one unit of a good per period, but can store more than one unit at a cost. Aggregate supply of the good may be insufficient to meet aggregate demand, but prices cannot adjust to equate supply and demand. I characterize stationary equilibria in which households maintain target inventories of z units. Thus, stockpiling arises if z > 1, and I demonstrate that this can be an equilibrium even for very small aggregate supply-demand imbalances. In particular, in many equilibria the incentive to stockpile is driven mostly by the stockpiling behavior of other households, and not by the fundamental supply shortage. Transitional dynamics are examined as well. Keywords: storage; consumer inventories; stockpiling; multiple equilibria; rationing; mean field games; search models (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:ris:albaec:2021_002 Access Statistics for this paper More papers in Working Papers from University of Alberta, Department of Economics Contact information at EDIRC. |
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