Effect of Anti-Price Gouging Law on Postdisaster Recovery Speed: Evidence from Reconstruction in Virginia and Maryland after Hurricane Sandy

Abstract

In the wake of a disaster, the price of essential goods and services, including reconstruction materials and labor, sharply increases. Price gouging refers to sellers and supply companies charging exorbitant prices for necessary items to take advantage of spikes in demand. Thirty-seven states out of fifty in the US have legislation regulating price gouging, regarded as an unfair or deceptive trade practice during a disaster or emergency. Consumers, academics, and practitioners have mixed opinions about the effectiveness of this anti-price gouging law. Most existing studies focus on the impact of general price control qualitatively and theoretically. This study aims to empirically examine the effect of the anti-price gouging law on the speed of reconstruction in Virginia and Maryland in the aftermath of Hurricane Sandy. The difference-in-differences approach was used to estimate the effect of the anti-price gouging law (treatment) on postdisaster reconstruction speed. This approach allows us to estimate the average treatment effect on the treated group by comparing the pre-to-post changes in the average number of monthly building permits in counties in Virginia (treatment group) with those of counties in Maryland (control group), while at the same time controlling for time-invariant county-specific heterogeneity and some other factors that may affect the monthly building permits for both groups in the absence of treatment. The findings show that the anti-price gouging law decreased the speed of postdisaster reconstruction by 18 units of monthly building permits (additional units in the treatment group due to treatment), indicating that the number of new housing units authorized by monthly building permits in Virginia is 18 units less than that of Maryland. The findings of this research are expected to assist policymakers and decision-makers in understanding the effect of the anti-price gouging law on reconstruction speed and enhancing their postdisaster reconstruction strategies and policies.