Prices are Bounties - by Maxwell Tabarrok
A man has just robbed a train. A Rock Island Rail car was held up in the desert of North Texas on route from Chicago carrying dozens of passengers and tens of thousands of dollars in a Wells Fargo express compartment. The men were slain and the women and children are kidnapped.
You’re the sheriff in charge of the investigation. In a case like this, tried and true procedure is to put a bounty on the man’s head. That gets everyone interested in looking and bringing this man to justice. An everyday 2-bit robber might get a bounty of a thousand or ten, but this is an emergency. You set the bounty at $200,000, dead or alive.
With two major hurricanes in the last couple of weeks, “price gouging” is in the news. Whether it’s $10 for a gallon of gas in North Carolina or $2,000 flights out of Tampa, charging high prices during an emergency is extremely unpopular.
The reasoning is intuitive: when someone is in a desperate situation, they might be willing to pay high prices for basic goods like gas or water, but charging them these high prices is taking advantage of their misfortune.
