ICES Experimental Economics Brown Bag Lecture
Hoarding and Price Controls
Thursday, October 20, 2022 12:00 PM to 1:00 PM EDT
Vernon Smith Hall (formerly Metropolitan Building), Room 5075
The Interdisciplinary Center for Economic Science (ICES) presents an ICES Brown Bag Lecture featuring:
George Mason University
Hoarding and Price Controls
Abstract
We use a two-period model with durable goods to predict the effect of price controls when storage is available. With a free market, there are incentives to hoard when there is an anticipated price increase. If price controls are imposed, our model predicts more hoarding and higher prices in the first period due to the possibility of rationing in the second period. Hoarding is a strategy to mitigate the effects of expected price increases and rationing. Impacts are different for low-value and high-value consumers. While high-value consumers buy-to-store in the first period, low-value consumers only buy and consume at current prices. An adaptation of this simple model can be used to examine the effect of inflation and price controls when consumers are able to stockpile items. When price controls are implemented, our model predicts an increase in hoarding and a decline in cash holdings. Therefore, prices are higher than they would be in a competitive market, and the government earns less inflationary tax money. We propose and conduct a laboratory experiment in order to test this theory.
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