Regulated Prices, Rent-Seeking, and Consumer Surplus
Price controls lead to misallocation of goods and encourage rent-seeking. The misallocation effect alone ensures that a price control always reduces consumer surplus in an otherwise-competitive market with convex demand if supply is more elastic than demand; or with log-convex demand (e.g., constant-elasticity) even if supply is inelastic. The same results apply whether rationed goods are allocated by costless lottery, or whether costly rent-seeking and/or partial decontrol mitigates the inefficiency. Our analysis exploits the observation that in any market, consumer surplus equals the area between the demand curve and the industry marginal revenue curve.
|Date of creation:||01 Feb 2012|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.economics.ox.ac.uk/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Marc P. Giannoni & Michael Woodford, 2003.
"Optimal Interest-Rate Rules: I. General Theory,"
506439000000000384, UCLA Department of Economics.
- Tatiana Kirsanova & Andrew P. Blake, 2010.
"Discretionary Policy and Multiple Equilibria in LQ RE Models,"
2010 Meeting Papers
789, Society for Economic Dynamics.
- Andrew P. Blake & Tatiana Kirsanova, 2012. "Discretionary Policy and Multiple Equilibria in LQ RE Models," Review of Economic Studies, Oxford University Press, vol. 79(4), pages 1309-1339.
- Blake, Andrew P. & Kirsanova, Tatiana, 2006. "Discretionary Policy and Multiple Equilibria in LQ RE Models," MPRA Paper 21901, University Library of Munich, Germany, revised 01 Apr 2010.
- Andrew Blake & Tatiana Kirsanova, 2008. "Discretionary Policy and Multiple Equilibria in LQ RE Models," Discussion Papers 0813, Exeter University, Department of Economics.
- Tatiana Damjanovic & Vladislav Damjanovic & Charles Nolan, 2007.
"Unconditionally Optimal Monetary Policy,"
CDMA Working Paper Series
200721, Centre for Dynamic Macroeconomic Analysis.
When requesting a correction, please mention this item's handle: RePEc:oxf:wpaper:595. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Monica Birds)
If references are entirely missing, you can add them using this form.