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

Author

Listed:
  • Julio J. Elias
  • Nicola Lacetera
  • Mario Macis

Abstract

Public authorities often introduce price controls in response to price surges, potentially causing inefficiencies and shortages. In a survey experiment with 7,612 Canadian and US respondents, we find that unregulated price increases cause general disapproval and strong moral reactions. However, acceptance is higher, and demand for regulation lower, when potential economic tradeoffs between controlled and unregulated prices are salient, and if the incentives resulting from price surges ultimately enhance access to goods. Highlighting tradeoffs also reduces the polarization of moral reactions between supporters and opponents of unregulated pricing. Text analysis of open-ended answers further supports our findings, and a donation experiment shows consistency between stated and revealed preferences.

Suggested Citation

  • Julio J. Elias & Nicola Lacetera & Mario Macis, 2022. "Is the Price Right? The Role of Economic Tradeoffs in Explaining Reactions to Price Surges," NBER Working Papers 29963, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:29963
    Note: EH PE PR
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    More about this item

    JEL classification:

    • C83 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Survey Methods; Sampling Methods
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
    • Z1 - Other Special Topics - - Cultural Economics

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