ICES Experimental Economics Brown Bag Lecture

Price Distortions and Hoarding: An Experiment

Thursday, October 19, 2023 12:00 PM to 1:00 PM EDT
Vernon Smith Hall (formerly Metropolitan Building), Room 5075

ICES Experimental Economics Brown Bag Lecture

The Interdisciplinary Center for Economic Science (ICES) presents an ICES Brown Bag Lecture featuring:

Edgar Castro

George Mason University

Price Distortions and Hoarding: An Experiment

 

 

 

Abstract

In a two-period model featuring durable goods, we explore the implications of anticipated price distortions in the context of available storage. Rationing serves as our primary mechanism to explain hoarding behavior. We empirically validate our model using four experimental setups: i) a free market without hoarding incentives, ii) a price-capped market in the first period followed by market liberalization in the second period, iii) a free market followed by a price-capped market that incentivizes hoarding, and iv) a market with a negative supply shock where hoarding is expected but rationing is not. We identify two main experimental results. First, our model accurately predicts effects related to shortages. Specifically, we do not observe shortages when participants use hoarding as a defense mechanism against anticipated price controls or following market liberalization. Second, there is a pronounced trend of excessive hoarding among participants, leading to reduced market efficiency compared to our theoretical predictions.

 

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