While price gouging can quickly mobilize forces to satisfy the emergency demand, they can also have problematic second-order effects. If a price gouge is too high, then this allows certain agents to benefit from the disaster. This creates a perverse incentive that disincentivizes disaster prevention, and potentially even incentivizing artifically intensifying / creating disasters.
I have a lot of trouble seeing how this would work in practice. I’d expect the downsides of intentionally creating disasters to be high, and that the people in a position to cause them through negligence would generally not be the ones who could benefit by selling into a disaster.
I do see how this could happen when the seller is a monopoly, though, so I do think our normal approach of trying to avoid monopolies, and to the extent we allow them highly regulate what they can charge, is still good.
The largest harm of Enron was the massive accounting fraud, not the artificial scarcity (though that was also large and bad!). But even the artificial scarcity was mostly fraud (lying to CAISO in various ways).
The artificial scarcity was also only possible because of regulatory loopholes that have since been closed. Overall this looks to me like a situation where instead of “full regulated monopoly” or “full free market” we built something in between, and initially did a bad job of it.
Sure, but the same incentive applies to fire departments & hospitals. Many organizations get their funding exclusively from harmful events. And even if firefighters have a (weak) incentive against fire safety, they couldn’t stop us from practising it anyway.
Hospitals make money from treating people not from people being ill. Their problematic incentives get them to treat people that don’t really need hospital treatment more than they have an incentive to make people ill.
Given people a routine colonoscopy when there’s no evidence that routine colonoscopies increase lifespan and then treating what’s found, could be seen as creating disasters (positive test results) but thinking of the positive tests as a harmful event mistakes the dynamics.
While price gouging can quickly mobilize forces to satisfy the emergency demand, they can also have problematic second-order effects. If a price gouge is too high, then this allows certain agents to benefit from the disaster. This creates a perverse incentive that disincentivizes disaster prevention, and potentially even incentivizing artifically intensifying / creating disasters.
I have a lot of trouble seeing how this would work in practice. I’d expect the downsides of intentionally creating disasters to be high, and that the people in a position to cause them through negligence would generally not be the ones who could benefit by selling into a disaster.
I do see how this could happen when the seller is a monopoly, though, so I do think our normal approach of trying to avoid monopolies, and to the extent we allow them highly regulate what they can charge, is still good.
Enron would be one case study where they worked to create artificial scarcity of electricity and then profit from increased prices.
The largest harm of Enron was the massive accounting fraud, not the artificial scarcity (though that was also large and bad!). But even the artificial scarcity was mostly fraud (lying to CAISO in various ways).
The artificial scarcity was also only possible because of regulatory loopholes that have since been closed. Overall this looks to me like a situation where instead of “full regulated monopoly” or “full free market” we built something in between, and initially did a bad job of it.
Sure, but the same incentive applies to fire departments & hospitals. Many organizations get their funding exclusively from harmful events. And even if firefighters have a (weak) incentive against fire safety, they couldn’t stop us from practising it anyway.
Hospitals make money from treating people not from people being ill. Their problematic incentives get them to treat people that don’t really need hospital treatment more than they have an incentive to make people ill.
Given people a routine colonoscopy when there’s no evidence that routine colonoscopies increase lifespan and then treating what’s found, could be seen as creating disasters (positive test results) but thinking of the positive tests as a harmful event mistakes the dynamics.