Saturday, May 19, 2012

Pricing vs rationing

Last week, I met Prof Indiresan for a dinner chat. It was extremely interesting to meet him over a dinner. He discussed his ideas including why we should have different interest rate for poor and rich States or regions in India.
Here is a article by Prof P V Indiresan in BL:
  • "Professor Sandel asks “Is that right?” He then quotes Professor Thomas Sowell who said that there was nothing wrong; people get accustomed to a price, but there is nothing sacred about it. Sowell has a point. In India, bus fares are ten times lower than they are in the US, but car prices are cheaper in the US than they are in India. Which then is the right price?
  • Years ago, I told Professor Madhu Dandavate, then Minister of Railways, of the harm done by rent control in the city of Bombay. At that time, it was estimated that around a hundred thousand flats were locked up by their owners because — once rented — they had little chance of getting their property back. If only the controls were removed, those flats would have entered the market, thereby, reducing rents.
  • What is more, a hundred thousand less attractive flats would also enter the market and the process would go on until a hundred thousand families currently living on pavements would have moved to better residences. He did not refute my argument, but as a socialist he would not do anything about it."

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