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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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  • Martin 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.

Suggested Citation

  • Martin L. Weitzman, 1977. "Is the Price System or Rationing More Effective in Getting a Commodity to Those Who Need It Most?," Bell Journal of Economics, The RAND Corporation, vol. 8(2), pages 517-524, Autumn.
  • Handle: RePEc:rje:bellje:v:8:y:1977:i:autumn:p:517-524
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    Cited by:

    1. Jeremy Clark & Bonggeun Kim, 2006. "Differential Time and Money Pricing as a Mechanism for In-kind Redistribution," Working Papers in Economics 06/07, University of Canterbury, Department of Economics and Finance.
    2. Spagat, M., 1995. "Leaving some stones unturned: A reassessment of iterative planning theory," Journal of Public Economics, Elsevier, vol. 58(1), pages 85-105, September.
    3. Stéphane Jacobzone, 1997. "Systèmes mixtes d'assurance maladie, équité, gestion du risque et maîtrise des coûts," Économie et Prévision, Programme National Persée, vol. 129(3), pages 189-205.
    4. 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.
    5. 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.
    6. Levy, Daniel, 2007. "Price adjustment under the table: Evidence on efficiency-enhancing corruption," European Journal of Political Economy, Elsevier, vol. 23(2), pages 423-447, June.
    7. 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.
    8. 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 478-495, June.
    9. repec:kap:transp:v:45:y:2018:i:1:d:10.1007_s11116-016-9733-3 is not listed on IDEAS
    10. 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.
    11. Charles Raux & Stéphanie Souche & Yves Croissant, 2009. "How fair is pricing perceived to be? An empirical study," Public Choice, Springer, vol. 139(1), pages 227-240, April.
    12. John Leach, 2010. "Ex Post Welfare under Alternative Health Care Systems," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 12(6), pages 1027-1057, December.
    13. Newell, Richard G & Stavins, Robert N, 2003. "Cost Heterogeneity and the Potential Savings from Market-Based Policies," Journal of Regulatory Economics, Springer, vol. 23(1), pages 43-59, January.
    14. Bennett, John, 1998. "Prices versus quantities and distributional inefficiency," Economics Letters, Elsevier, vol. 58(1), pages 63-67, January.
    15. Rouwendal, J., 1990. "Stochastic market equilibria with efficient rationing with an application to the Dutch housing market," Serie Research Memoranda 0030, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
    16. Kakwani, Nanak & Ray, Ranjan, 1989. "Optimal commodity taxes under rationing," Policy Research Working Paper Series 203, The World Bank.
    17. 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 be ," WIFO Working Papers 409, WIFO.

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