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Is the Price System or Rationing More Effective in Getting a Commodity to Those Who Need It Most?

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  • M. L. Weitzman

Abstract

Using a simple formal model, the present paper analyzes under what conditions the price system or crude rationing is more effective in matching up the limited supply of a deficit commodity with those users who need it most. The answer depends in a well-defined way on the distribution of needs and income. Other things being equal, the price system has greater comparative effectiveness in sorting out the deficit commodity and in getting it to those who need it most when wants are more widely dispersed or when the society is relatively egalitarian in its income distribution. Conversely, rationing is more effective as needs for the deficit commodity are more uniform or as there is greater income inequality.

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Bibliographic Info

Paper provided by Massachusetts Institute of Technology (MIT), Department of Economics in its series Working papers with number 140.

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Date of creation: Oct 1974
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Handle: RePEc:mit:worpap:140

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Postal: MASSACHUSETTS INSTITUTE OF TECHNOLOGY (MIT), DEPARTMENT OF ECONOMICS, 50 MEMORIAL DRIVE CAMBRIDGE MASSACHUSETTS 02142 USA
Phone: (617) 253-3361
Fax: (617) 253-1330
Web page: http://econ-www.mit.edu/
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Postal: MASSACHUSETTS INSTITUTE OF TECHNOLOGY (MIT), DEPARTMENT OF ECONOMICS, 50 MEMORIAL DRIVE CAMBRIDGE MASSACHUSETTS 02142 USA
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Cited by:
  1. Mansur, Erin T. & Olmstead, Sheila M., 2012. "The value of scarce water: Measuring the inefficiency of municipal regulations," Journal of Urban Economics, Elsevier, vol. 71(3), pages 332-346.
  2. Lui, Hon-Kwong & Suen, Wing, 2011. "The effects of public housing on internal mobility in Hong Kong," Journal of Housing Economics, Elsevier, vol. 20(1), pages 15-29, March.
  3. Richard J. Gilbert & Paul Klemperer, 2000. "An Equilibrium Theory of Rationing," RAND Journal of Economics, The RAND Corporation, vol. 31(1), pages 1-21, Spring.
  4. Stavins, Robert & Newell, Richard, 2000. "Cost Heterogeneity and the Potential Savings from Market-Based Policies," Discussion Papers dp-00-10-rev, Resources For the Future.
  5. Timothy Besley, 2013. "What's the Good of the Market? An Essay on Michael Sandel's What Money Can't Buy," Journal of Economic Literature, American Economic Association, vol. 51(2), pages 478-95, June.
  6. Claudia Kettner & Daniela Kletzan-Slamanig & Angela Köppl & Thomas Schinko & Andreas Türk, 2011. "ETCLIP – The Challenge of the European Carbon Market: Emission Trading, Carbon Leakage and Instruments to Stabilise the CO2 Price. Price Volatility in Carbon Markets: Why it Matters and How it Can b," WIFO Working Papers 409, WIFO.
  7. Lucas W. Davis & Lutz Kilian, 2011. "The Allocative Cost of Price Ceilings in the U.S. Residential Market for Natural Gas," Journal of Political Economy, University of Chicago Press, vol. 119(2), pages 212 - 241.

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