Marginal Revolution: Microeconomics exam question

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Microeconomics exam question

1. Derive the conditions under which post-disaster looting is efficient.

Hints: Start with a queuing problem, and then ask when rents will not be exhausted; that is, the resources spent obtaining the goods should not equal the value of the goods themselves. The quest for looted goods therefore should be monopolized or somehow restricted, rather than competitive. The goods should be perishable, available for subsequent resale, and the negative incentive effect on future production should be small. The discount rate and the transactions costs of immediate sale by the (previous) owner should both be high.

Extra credit: Does efficiency more likely rise or fall when we consider looting by the police?

Posted by Tyler Cowen on September 1, 2005 at 06:48 AM in Economics | Permalink

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Comments

You're confusing rational behavior with rationalizable behavior. The people who are doing the looting, by and large, are NOT people who are known for their wise decision making. That's why they're poor.

The looters are assuming that they won't get caught. If they rationally set a chance of being, say, tracked down after being photographed, and considered how the judge & jury are likely to treat someone accused of looting, they would undertake at least some effort to conceal their faces. The fact that they are not attempting to hide their identity means that they are not thinking far enough ahead to see this. The situation is Biloxi and Gulfport, I think, makes this clear--police are not nearly as hampered there, but widespread looting still is occuring.

Likewise, I doubt that there is a serious consideration being given to fencing, or intermediate storage, for that matter. These people simply see the opportunity to acquire things. Looting in some clothing stores was marked by typical shopper behavior--checking label, size, etc.

As for cop looters (we also saw this on 9/11), again, the looter is simply assuming he won't get caught. They start with the advantage of being armed, but that appears to have changed.

I think that they evolution of looting (reports late yesterday were suggesting that armed gangs were taking over) is a far more suitable course of study. The only question that remains, as hinted at by the following post, is, "Do we count looting by elected officials under usual circumstances or not?"

Posted by: Nathan at Sep 1, 2005 10:06:57 AM

The common law of torts, through the privilege (i.e., defense) of "private necessity," comes to much the same conclusion.

Posted by: KipEsquire at Sep 1, 2005 10:23:48 AM

"The people who are doing the looting, by and large, are NOT people who are known for their wise decision making. That's why they're poor."

That's also why they're still there in the first place.

Posted by: Ken at Sep 1, 2005 10:38:43 AM

When we say that a group of people aren't known for their wise decision-making, what do we mean? Aren't we just saying they have a extremely high discount value, so their effective time horizon is very low? In other words, that they fit some of the criteria above?

Posted by: ryan at Sep 1, 2005 12:28:49 PM

It struck me that this is a pretty literal example of sunk costs. Devoting scarce resources to prevent looting from businesses with full insurance for losses seems (especially goods that can't even be consumed properly, like a television w/o electricity) like a dubious use of resources.

There might be other reasons to step in (e.g., looting behavior feeds into general unruliness or lawlessness that makes crowd controls/evacuation harder), but this seems like a lot of fuss with real practical costs. Of course, investing effort in stopping the broken levees was probably wasteful, too: unless they could stop it quickly, the water was going to equilibrate anyway; just focus on getting people out.

Posted by: Robert S at Sep 1, 2005 12:52:44 PM

1. The looting _is_ interfering with evacuation -- the general climate of disorder is now including shots at helicopters, people threatening hospitals, etc.

2. Stopping the broken levees isn't wasteful, b/c the water isn't going to entirely equilibrate -- it is going to slosh around due to tides and seiche. The sloshing also makes evacuation more difficult. Once the breaches are filled, water levels in the city will be decoupled from the lake and will therefore be easier to predict and manage. [Seiche is a tidal resonance, formed on lakes such as Ponchartrain after earthquakes, tsunamis, and severe storms.]

3. As far as the analysis of looting goes, one must separate the act of removing about-to-be-destroyed property from the act of roving the city in armed gangs. One may be efficient and one is not.

Posted by: DK at Sep 1, 2005 1:26:00 PM

It is for many quite rational to engage in looting. The fact that they are not concealing their identity speaks to the expected costs and benefits of prosecuting these individuals. Even if they are photographed looting, how many resources are officials (or insurance companies) to expend in the determination of the identity of each looter, the value of the goods that each took and their subsequent criminal and/or civil prosecution? Furthermore, given that juries are not typically comprised of the brightest or wealthiest individuals, would a jury really be averse to nullification out of sympathy for a defendant's socioeconomic status?

Posted by: Adam at Sep 1, 2005 6:24:36 PM

"The people who are doing the looting, by and large, are NOT people who are known for their wise decision making. That's why they're poor."

I can't see the link between poverty and lack of inteligence.

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