Is the Price Right? The Role of Morals, Ideology, and Tradeoff Thinking in Explaining Reactions to Price Surges
Price surges often generate social disapproval and requests for regulation and price controls, but these interventions may cause inefficiencies and shortages. To study how individuals perceive and reason about sudden price increases for different products under different policy regimes, we conduct a survey experiment with Canadian and U.S. residents. Econometric and textual analyses indicate that prices are not seen just as signals of scarcity; they cause widespread opposition and strong and polarized moral reactions. However, acceptance of unregulated prices is higher when potential economic tradeoffs between unregulated and controlled prices are salient and when higher production costs contribute to the price increases. The salience of tradeoffs also reduces the polarization of moral judgments between supporters and opponents of unregulated pricing. In part, the acceptance of free price adjustments is driven by people’s overall attitudes about the function of markets and the government in society. These findings are corroborated by a donation experiment, and they suggest that awareness of the causes and potential consequences of price increases may induce less extreme views about the role of market institutions in governing the economy.
We thank participants in seminars at the Johns Hopkins Berman Institute of Bioethics, Loughborough University, Sao Paulo School of Economics, Schwartz Reisman Institute for Technology and Society, George Washington University, University of Genova, University of Illinois at Urbana-Champaign, University of Sussex (SPRU), and University of Toronto for their comments. The study received approval from the Research Ethics Board at the University of Toronto (protocol 12177) and the Homewood Institutional Review Board at Johns Hopkins University (protocol 00040280); the registration number at the American Economic Association’s Registry for Randomized Controlled Trials is AEARCTR-0007531. Financial support for this research comes from the Johns Hopkins Business of Health Initiative (HBHI), the Johns Hopkins “Catalyst Award,” and the Sandra Rotman Centre for Health Sector Strategy at the University of Toronto. The donation experiment was conducted only for research purposes, and does not represent an endorsement of the recipient organization by Johns Hopkins University, the University of Toronto, or by the authors of the study. Salwa Abdalla provided excellent research assistance. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.