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The welfare costs of price controls and rent seeking in a class experiment

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Listed:
  • Grace Finley

    (US Council of Economic Advisors)

  • Charles Holt

    (University of Virginia)

  • Emily Snow

    (Boston Consulting Group)

Abstract

There are two efficiency effects of price controls: an “output effect” measured by the standard welfare loss triangles, and an “imperfect selection effect” that arises when controls prevent price from excluding high-cost sellers or low-value buyers. Although not discussed in most textbooks, the imperfect selection effect can be as large as the standard Harberger triangle welfare loss in symmetric designs, as confirmed by a class experiment described in this paper. The experiment also permits an analysis of the ways random non-price allocations shift the relevant supply function, and the related effects of rent-seeking competition that can arise with price controls.

Suggested Citation

  • Grace Finley & Charles Holt & Emily Snow, 2019. "The welfare costs of price controls and rent seeking in a class experiment," Experimental Economics, Springer;Economic Science Association, vol. 22(3), pages 753-771, September.
    • Handle: RePEc:kap:expeco:v:22:y:2019:i:3:d:10.1007_s10683-018-9581-4
    DOI: 10.1007/s10683-018-9581-4
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    References listed on IDEAS

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    Cited by:

    1. Lata Gangadharan & Charles N. Noussair & Marie-Claire Villeval, 2019. "Introduction to the special issue in honor of Professor Charles R. Plott," Experimental Economics, Springer;Economic Science Association, vol. 22(3), pages 577-584, September.
    2. Giuseppe Attanasi & Kene Boun My & Andrea Guido & Mathieu Lefebvre, 2021. "Controlling monopoly power in a double‐auction market experiment," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 23(5), pages 1074-1101, October.

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    More about this item

    Keywords

    Classroom experiment; Rent seeking; Price controls; Market efficiency; Veconlab;
    All these keywords.

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior

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