Microeconomics exam question

1. Derive the conditions under which post-disaster looting is efficient.

Hints: Start with a queuing problem, and then ask when rents will not be exhausted; that is, the resources spent obtaining the goods should not equal the value of the goods themselves.  The quest for looted goods therefore should be monopolized or somehow restricted, rather than competitive.  The goods should be perishable, available for subsequent resale, and the negative incentive effect on future production should be small.  The discount rate and the transactions costs of immediate sale by the (previous) owner should both be high.

Extra credit: Does efficiency more likely rise or fall when we consider looting by the police?


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