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2025-01-19-continuous-regulation-makes-for-smooth-markets
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continuous regulation makes for smooth markets
"regulators" are parts of a dynamic system that apply negative feedback to something to keep it within a certain normative range
https://en.wikipedia.org/wiki/Regulator
(automatic
control)
https://en.wikipedia.org/wiki/Governor_(device)
one of the "beautiful" aspects of markets is that they apply this throughout the system by price changes and signaling
ex. increase in housing demand => increase in house prices => change in behaviour (on both the supply and demand side)
supply: higher prices enable new supply (that was otherwise unsustainable to pursue)
ex. higher petroleum prices enable more expensive forms of extracting petroleum
demand: higher prices temper people's demand
ex. given high house prices, willing to live with parents longer, live further from work, not have a guest room, etc.
smooth market operation (ie. no "shocks", dramatic adjustments) is desirable
to have "smooth markets" want to avoid discontinuities in supply/demand curves
certain policies create discontinuities
ex. land transfer taxes disincentivize selling of property, creating/increasing the threshold at which someone would want to sell
ex. a family has a home, children have moved out, but the fee of selling delays when the parents would downsize by imposing a transition cost
transition costs create discrete "curves", with sharp transitions between states, rather than continuous ones
such transitions can align between many participants in a market
(ie. everyone holds out until X condition, at which point they all change in behaviour)
ie. tipping points
such discontinuous transitions cause shocks (~ non-linear behaviour)
we should want to avoid transaction costs and arbitrary thresholds
ex.
land transfer fees
income cut offs for welfare
2025-01-19
#public-policy
#economics
#market-design
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