How Scarce Goods Are Allocated In A World Without Prices

I can think of at least two ways goods are allocated when there are no prices

  • By use of force.  In modern societies, use of force is generally limited to the government so in practice this means that goods without prices will tend to flow to those with government power or who are cronies of those in power.  A great example were the special stores in the Soviet Union for party officials, but examples great and small abound today.  Here is one small one.
  • By queuing or time spent searching.  The examples of this are all around us, though they frequently are not strictly of things without prices but of things that have been priced far below their market clearing price.  I think back to my days queuing in physical lines (long before Ticketmaster and the Internet) for concert tickets that were not free but were priced so far below market clearing prices that one had to wait in long lines to get them.  The gasoline lines of the 1970's and the time spent driving around looking for a gas station that had gas is another example.  A more recent example would be long hospital emergency room lines created by people who get care "free" at emergency rooms.

It was in this context that I read this article on finding parking in New York City.  Residential street parking in NYC is an extremely valuable resource for which there is no monetary charge.  So there is a lot more demand than supply.  So people spend scores of hours a year searching and queuing for spaces.

To some extent, this time cost is sort of like a money cost -- when the cost gets too high in relation to the value people assign to having a car, people give up their cars and bring supply and demand in balance.  But while people may vary in the amount they value having a car, one perverse aspect of any queuing system is that it will tend to allocate goods to the people with the lowest marginal value for their time.   The lower the marginal value one assigns to one's time and labor, the more hours one might be willing to queue and search.

This is a large reason why I have always thought price controls during emergencies - e.g. the "no price gouging during hurricanes" sorts of laws - are particularly destructive.  In the aftermath of a disaster like a hurricane there will be those who are mainly just sitting at home waiting things out, wondering how many days they will get off work and school; and there will be those who have a ton to do - roof repairers, tree cutters, etc.  Think about gasoline, where there is often a temporary supply shortfall after a hurricane.  Prices should rise to bring things in balance but laws do not allow this, so queuing results.  Who is most able to afford to sit in these queues - the person who is just sitting around waiting for things to reopen or the person who is totally bombarded with work and needs to be 23 places at once?  Do we really want roof repairers sitting 2 hours in line for gas behind three teenagers** who had nothing else to do so their parents sent them to top of the tank "just in case"?

** Growing up in Houston through several hurricanes, I have been this teenager and assigned exactly this task.

  • Stan Erickson

    When I was little, my dad didn't extract money from me for the goods he gave me. Instead, he just judged what was needed and what was available, and doled it out. In primitive societies, pre-pricing, the "Big Man" of the village was responsible for doling out whatever came in from the hunting, gathering, agriculture and trades. His honor was measured by how well he did this task. Everybody was taken care of, except in emergency times. This system worked fine for probably 300 times as long as pricing. I don't know the name anthropologists give to this system.

  • bloke in france

    In London, residential parking is expensive and there are usually not a lot of them.
    So people waste time trying to find somewhere to park.
    My rich pal has a posh motor which he nearly never uses, because uber is simpler.
    I asked the obvious question; why keep the motor then?
    It's a "signifier"
    All the world has prices, even if they are not immediatly visible.

  • Maddog

    The movie version of this story is Soylent Green

    http://www.maddogslair.com/blog/the-movie-version-of-this-story-is-soylent-green

    Soylent Green shows both mechanisms working, and the results. It is a silly story regarding the population bomb element, but dead bang accurate regarding the consequences of socialism.

    https://www.youtube.com/watch?v=N_jGOKYHxaQ

    Mark Sherman

  • jdgalt

    This situation suggests its own market solution: professional line-sitters. If buying gas requires waiting in line, go and fill up, then siphon your tank and sell gallon jugs of gas on the sly at a market-clearing price. (I'm aware New York, at least, outlawed this practice during the last disaster, but not completely successfully.)

    For finding parking, this has not been practical up to now, but I soon expect to see smartphone apps that amount to creating a "Craigslist of parking places", from which you can arrange for one while on your way from point A to point B, or shortly before leaving. The deal to be transacted in cash, of course, when you get to the place your finder directs you to.

  • DirtyJobsGuy

    I'm a careful reader of the billing statements sent by our health insurer and various medical providers. For primary care in particular the list prices are not especially high in my opinion and the "negotiated" prices are too low so we get both a "short" Dr Visit and really poor availability of office apt slots. The entire medical system is now the equivalent of basic economy on airlines. The only out is fairly high priced concierge service. This shifts low time value patients to emergency rooms, urgent care clinics and others.

  • glenn.griffin3

    And it works great, in families. Even extended families. Until that one self-destructive brother-in-law comes along and requires bail money (for the 4th time) far in excess of his usefulness to the family.

    And anyone expects commensalism to work in a city, which is essentially a community of thousands of your least favorite family members?

  • Stan Erickson

    Babylon

  • David Rogers

    Here's a good video pondering a world without prices as a thought experiment:

    https://www.youtube.com/watch?v=zkPGfTEZ_r4