Rationing
From Wikipedia, the free encyclopedia
Rationing is the controlled distribution of resources and scarce goods or services: it restricts how much people are allowed to buy or consume. Rationing controls the size of the ration, one's allotted portion of the resources being distributed on a particular day or at a particular time.
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[edit] Rationing economics
In economics, it is often common to use the word "rationing" to refer to one of the roles that prices play in markets, while rationing (as the word is usually used) is called "non-price rationing." Using prices to ration means that those with the most money (or other assets) and who want a product the most get the largest amount, whereas non-price rationing follows other principles of distribution. Below, we discuss only the latter, dropping the "non-price" qualifier, to refer only to marketing done by an authority of some sort (often the government).
In market economics, rationing artificially restricts demand. It is done to keep price below the equilibrium (market-clearing) price determined by the process of supply and demand in an unfettered market. Thus, rationing can be complementary to price controls.
An example of rationing in the face of rising prices took place in the Netherlands, where there was rationing of gasoline in the 1973 energy crisis.
A reason for setting the price lower than would clear the market may be that there is a shortage, which would drive the market price very high. High prices, especially in the case of necessities, are unacceptable with regard to those who cannot afford them. In wartime, it is usually imperative for a government to maintain the support of this part of the population, to maintain "equality of sacrifice," especially since in most countries, the working-class and poor families contribute most of the soldiers.
Rationing using coupons is only one kind of non-price rationing. For example, scarce products can be rationed using queues. This is seen, for example, at amusement parks, where one pays a price to get in and then need not pay any price to go on the rides. Similarly, in the absence of road pricing, which is infeasible in many or most cases, access to roads is rationed in a first come, first serve queueing process, leading to congestion.
Authorities which introduce rationing often have to deal with the rationed goods being sold illegally on the black market.
[edit] Credit Rationing
A concept in economics and banking. It describes the situation when a bank limits the supply of loans, although it has enough funds to loan out, and the supply of loans has not yet equalled the demand of prospective borrowers. Changing the price of the loans (interest rate) does not equilibriate the demand and supply of the loans. The bank finds that raising the interest rate beyond a certain level actually reduces its profitability.
Joseph E. Stiglitz and Andrew Weiss's 1981 paper was one of the early papers to explain why the bank (or any lending institution for that matter) may credit ration its borrower if 1) the bank was unable perfectly distinguish the risky borrowers from the safe ones 2) the loan contracts were subject to limited liability (if projects returns were less than the debt obligation, the borrower bears no responsibility to pay out her pocket).
Raising the interest rate may cause adverse selection which would lead to an increases the number of 'risky' borrowers in the pool of aspiring borrowers. With higher debt obligations (due to higher interest rate) only the risky borrowers with higher returns would be ready to take up the banks contract. Recall, that with limited liability, the borrowers repay the loan if successful, but escape the consequence of failure of the project. Thus, only borrowers with riskier projects would be ready to take high interest rate loans. Thus, raising the interest rate increases the proportion of the risky borrowers in the project and reduces the overall profitability of the bank.
[edit] Military rationing
Rationing has long been used in the military, especially the navy, to make supplies last for a defined duration, such as a voyage. To ration the supplies, they are divided up into equal portions for each person for each day, or even a meal, over the expected voyage period. The objective is to ensure that each person receives a fair share of supplies throughout the voyage. Often some reserve was also held. If supplies ran short or the voyage went longer than expected, the ration portions would be reduced. For example, half rations means the portions are cut in half, making the supplies last twice as long.
[edit] Civilian rationing
Rationing is often instituted during wartime for civilians as well. For example, each person may be given "ration coupons" allowing him or her to purchase a certain amount of a product each month. Rationing often includes food and other necessities for which there is a shortage, including materials needed for the war effort such as rubber tires, leather shoes, clothing and gasoline. Towards the end of the First World War, panic buying in the United Kingdom prompted rationing of first sugar, then meat, for the rest of the war. During World War II rationing existed in many countries including the United Kingdom and the United States. The British Ministry of Food refined the process in the early 1940s to ensure the population did not starve when food imports were severely restricted and local production limited due to the large number of men fighting the war. Rationing did not end in the United Kingdom until the 1950s – see also Rationing in the United Kingdom during and after World War II. Civilian peace time rationing of food may also occur, especially after natural disasters, during contingencies, or even after failed governmental economic policies regarding production or distribution, the latter happening especially in highly centralized planned economies. Examples of these situations include North Korea, China during the 1970s and 1980s, Communist Romania during the 1980's, the Soviet Union in 1990-1991, and Cuba today. This led to Rationing in the Soviet Union, Rationing in Communist Romania, Rationing in North Korea, Rationing in Cuba, and austerity in Israel.
Another form of rationing that was employed during World War II, called Ration Stamps. These were redeemable stamps or coupons. Every family was issued a set number of each kind of stamp based on the size of the family, ages of children and income. This allowed the Allies and mainly America to supply huge amounts of food to the troops and later provided a surplus to aid in the rebuilding of Europe with aid to Germany after food supplies were destroyed.
[edit] Emergency rationing
Rationing of food and water may become necessary during an emergency, such as a natural disaster or terror attack. The Federal Emergency Management Agency (FEMA) has established guidlines for civilians on rationing food and water supplies when replacements are not available. According to FEMA standards, every person should have a minimum of one quart per day of water, and more for children, nursing mothers, and the ill. Water should not be rationed in an emergency. Food, on the other hand, can be rationed for many days. More information is available in FEMA's Are You Ready? guide.
[edit] Sources
- Matt Gouras. "Frist Defends Flu Shots for Congress." Associated Press. October 21, 2004.
[edit] See also
[edit] References
Stiglitz, J. & Weiss, A. (1981). "Credit Rationing in Markets with Imperfect Information," American Economic Review, vol. 71, pages 393-410.
