Re: Free Market Works

[sam h]

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Price caps cause distortions in choices. That's inefficiency. You're talking about "efficiency" from some social policy point of view, not economics.

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I am talking about whether resources are being channelled optimally into production. Limiting the price of hotel rooms for a short period of time has no bearing on this. This is the basic de facto understanding of efficiency in macroeconomics.

If your understanding of efficiency centers on consumer choices being endogenously generated and not changed, then yes, a price control would be inefficient by definition.

[sam h]

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How they are distributed and utilized is not fixed -- raising the price will have an effect on how they are utilized.

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Of course. But since it has no bearing on the larger economy and can't be justified in any other way, it just comes down to a subjective judgement about whether you think one set of outcomes is better than the other. That's all I'm saying.

[SheetWise]

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Pareto efficiency, or Pareto optimality, is a central theory in economics with broad applications in game theory, engineering and the social sciences. Given a set of alternative allocations and a set of individuals, a movement from one alternative allocation to another that can make at least one individual better off, without making any other individual worse off is called a Pareto improvement. An allocation of resources is Pareto efficient or Pareto optimal when no further Pareto improvements can be made.

The term is named after Vilfredo Pareto, an Italian economist who used the concept in his studies of economic efficiency and income distribution.

If an economic system is not Pareto efficient, then it is the case that some individual can be made better off without anyone being made worse off. It is commonly accepted that such inefficient outcomes are to be avoided, and therefore Pareto efficiency is an important criterion for evaluating economic systems and political policies.


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Link.

[sam h]

I would be interested to see stats on this, especially regarding broadband delivery. It seems likely that even with wireless, individual service deliverers might not all have their own networks but have to contract out for use of local infrastructure to broadcast wireless signals, which would require regulation of how major players shared that infrastructure.

[sam h]

I understand Pareto optimality. Please show how it applies.

[SheetWise]

There is no regulation on point-to-point wireless transmission.

[tylerdurden]

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I am talking about whether resources are being channelled optimally into production.

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OMFG now who's "changing the definition" when they're losing?

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If your understanding of efficiency centers on consumer choices being endogenously generated and not changed, then yes, a price control would be inefficient by definition.

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It's not just that - the owner of the hotel is being restricted from maximizing his revenue. That type of behavior WILL have a detrimental effect on future construction. In other words, even in the unlikely scenario where those who would pay the most for the rooms end up with them despite price caps (basically the only way this can happen is by chance or by bribery), efficiency is still decreased.

[SheetWise]

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I understand Pareto optimality. Please show how it applies.

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In the example I offered earlier ...

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Let's say the owner values it at $100. If there is an artificial limit set at $40, he will still rent it -- because it is an unrecoverable asset (it can't be placed into inventory). But he valued it higher. I may value it at $100 as well, so I either get a great deal -- or find it unavailable because it was artifically priced too low. In the later case, both I and the proprietor were denied the right to make a deal we both thought was fair, and the beneficiary of our loss is some unknown person who got a great deal.

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[sam h]

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both I and the proprietor were denied the right to make a deal we both thought was fair, and the beneficiary of our loss is some unknown person who got a great deal.


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Given a set of alternative allocations and a set of individuals, a movement from one alternative allocation to another that can make at least one individual better off, without making any other individual worse off is called a Pareto improvement.

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Removing a price control, while defensible on many grounds, is not a pareto improvement.

[sam h]

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OMFG now who's "changing the definition" when they're losing?

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When did I use any other definition in this thread?

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That type of behavior WILL have a detrimental effect on future construction.

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That is a joke. You think people are going to decide not to build a hotel because they won't be able to jack up prices for a week once every five years? This is such a miniscule piece of the revenue stream.

You can argue that its "unfair" but there is no adverse long-term consequence of putting a very short-term price ceiling on the hotel industry in a small geographic area.