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Coordination in disaster: Nonprice learning and the allocation of resources after natural disasters

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  • Daniel Sutter

    (Troy University)

  • Daniel J. Smith

    (Troy University)

Abstract

Most economists agree that the price system offers the best method for allocating scarce resources among competing ends. Yet, churches, nonprofits, governments, and corporations in disaster-stricken communities, often under voluntary or mandated price freezes, must often rely on nonprice responses to meet short-term, localized shifts in demand. Evidence suggests that the private sector outperforms the public sector at this task. This paper explores how private sector organizations, both nonprofit and for-profit, learn about and respond to community needs in the aftermath of disasters. We explain and demonstrate how organizations observe credible signals of shifts in demand without the aid of prices. Our findings expand our understanding of why public sector disaster recovery efforts tend to be less effective than private sector efforts. We also find that price gouging laws have additional negative consequences beyond the standard economic account.

Suggested Citation

  • Daniel Sutter & Daniel J. Smith, 2017. "Coordination in disaster: Nonprice learning and the allocation of resources after natural disasters," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 30(4), pages 469-492, December.
    • Handle: RePEc:kap:revaec:v:30:y:2017:i:4:d:10.1007_s11138-016-0369-5
    DOI: 10.1007/s11138-016-0369-5
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