Sunday, March 7, 2021

rationing

My previous post mentioned power shortages in Texas; to some extent generally, but especially when there are power shortages, retail allocation of electricity in the United States is mostly not done by a market mechanism.  Similarly, the covid vaccine is not being allocated by market mechanisms.  In both cases, more centralized government or quasi-government organizations are making decisions about priorities.

In all cases, it seems that an important consideration for the prioritization schemes should be pump-priming; you have this resource that is bitingly scarce, with a high marginal benefit, and so first and foremost you would prefer not to have to make choices, that is to have as much production as possible.  In both cases we seem to have had failures of this sort; some of the shortage of gas to gas-powered electricity generators appears to have been due to power cuts to gas infrastructure, and while health care workers were given high priority for vaccines, apparently the vaccine makers themselves were not, and have suffered some slowdown because of employees out during the third wave.

In an idealized market, the gas systems would have outbid other buyers for power, and vaccine producers, being paid marginal benefit for additional vaccine production, would outbid most buyers to allocate those vaccines to their own employees.  In a (politically and otherwise) realistic market, I don't know whether that would have worked out.  In any case, it seems like a useful point for future designers of rationing schemes to keep in mind; if a scarce good is extremely valuable, then using some of it to produce more of it is probably a good idea.

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