Marginalium

Incentivising hoarding:

In a landmark 1986 study, Daniel Kahneman, Jack Knetsch and Richard Thaler gathered evidence that most people find this sort of behaviour unacceptable. (For example, 82 per cent of respondents thought it was unfair for a hardware store to raise the price of snow shovels after a snowstorm.) We could argue over whether these feelings of outrage at “profiteers” are simply mistaken or tap into some deeper wisdom, but the practical point is that firms know that they will be criticised if they build up stores and try to sell them at a profit in a crisis. As a result, they will spend less on storage than they should. A second problem is that supply interruptions have a large social cost. The cost of a blackout falls partly on the electricity supplier but mostly on customers, and so the supplier is likely to skimp on storage, backups and other ways to improve reliability. Then there is the third problem, which is that some kinds of storage are extremely expensive. Could the storage problem be solved? Governments could subsidise some forms of storage and stockpiling … They could do more to encourage trade and collaboration … they could invest more in early warnings of trouble. They will need to stand ready to resist the inevitable grumbles that the stockpiles constitute a waste of taxpayers’ money.