Monday, August 23, 2010

More on induced demand

A quick hit... Yglesias his another out of the park.  He write:

I feel certain that if Financial Times did an article about how some country’s determination to provide free bags of rice to all its citizens was leading people to spend a huge amount of time standing on line waiting for rice, that they would highlight the fact that this is what happens when you don’t price things correctly. There’s only so much rice. There are only so many hander-outers of rice. If you try to make the rice free to everyone, you’re going to get lines and shortages.
At any rate, as Clive Cookson points out in the FT a comparable problem exists on most countries’ roadways:

Read the full article, and this one in the Financial Times (registration required). As Matt points out, trying to eliminate congestion on roadways by adding capacity is like trying to give away free rice.  (Or free beer, which doesn't sound like a bad idea).  It's not exactly the same, of course, as people can hoard rice but it's not really possible to hoard space on the freeway--congestion relief is more akin to a service than a good--but making something really cheap (or nearly free) tends to encourage over-consumption.

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