Hoarding (economics)

In economics, hoarding is the practice of obtaining and holding scarce resources, possibly so that they can be sold to customers for profit.

Definition

Under capitalist theory, if this is done so that the resource can be transferred to the customer or improved upon, then it is a standard business practice (e.g. buying up a bunch of wood to turn into a house); however, if the sole intent is to hold an otherwise unavailable resource it is considered hoarding.

Causes

Hoarding behavior may be a common response to fear, whether fear of imminent society-wide danger or simple fear of a shortage of some good. Civil unrest or natural disaster may lead people to collect foodstuffs, water, gasoline, and other essentials which they believe, rightly or wrongly, will soon be in short supply.

Economically speaking, hoarding occurs due to individuals obtaining and holding assets thought to be undervalued and build up reserves of it in hopes to profit or save money later. Examples include times when price controls were in effect as in the case of Germany after World War II, communist countries, or after natural disasters when goods are in such short supply that consumers stockpile (this is sometimes compounded by anti-price gouging laws which prevent the supply and demand curves from functioning). In these cases the hoarding disappears after the price controls are removed.

Example

A feature of hoarding is that it leads to an inefficient distribution of scarce resources, making the scarcity even more of a problem. An example occurs in cities where parking is inadequate. In such a case, businesses may post signs indicating that their lot is for their employees and customers only, and all other vehicles will be towed. This prevents businesses from allowing their parking to overflow into neighboring lots when their capacity is exceeded. Thus, when the capacity is reached at one business, there may be no legal place to park, while there would have been, if hoarding had not occurred. If a single business posted those signs, it would, indeed, improve the parking situation at that business, as they could continue to park at adjacent businesses, while the others could not park in their lot. However, when everybody posts such signs, the problem becomes worse for everyone. (This example assumes all of the lots are sometimes inadequate for their businesses; in a case where a business has sufficient parking for itself, but its lot is filled with customers from others, the signs would be beneficial to that business, even if others did the same.)

See also

• Gresham's law