Empirical Investigation of the Effect of Anti-Price-Gouging Law on Postdisaster Reconstruction Wages

Abstract

Anti-price-gouging laws are enforced by a disaster declaration to control reconstruction labor and material costs in the wake of disasters. Reconstruction costs provide an important signal in the postdisaster reconstruction resource market, enabling consumers, suppliers, and policymakers to understand the postdisaster situations and prepare reconstruction strategies. However, the impact of anti-price-gouging law on postdisaster reconstruction costs has not been examined in the literature. The objective of this study is to investigate the effect of the anti-price-gouging law on postdisaster reconstruction wages at the US. County level following major disasters declared by the Federal Emergency Management Agency (FEMA). Panel data models with a difference-in-differences (DID) specification were implemented to quantify the effect of the anti-price-gouging law on postdisaster reconstruction wages. The DID specification was used to compare the pre and postchanges in reconstruction wages in the US counties subject to the state-level anti-price-gouging law relative to the wages in the US counties not subject to the law, controlling for endogenous county-specific heterogeneities. It is found that the anti-price-gouging laws reduced quarterly reconstruction wages by 2.5 percent in disaster-stricken counties. This finding indicates the effectiveness of anti-price-gouging laws as a price control to mitigate postdisaster reconstruction cost inflation. The US counties subject to the anti-price-gouging law enforcement have experienced less expensive reconstruction labor costs compared to the US counties not subject to the anti-price-gouging law enforcement. The findings of this research provide empirical evidence about the function of anti-price-gouging laws as a reconstruction cost control and present policy implications about the wage effect of anti-price-gouging laws in the postdisaster reconstruction market.