Is the Price System or Rationing More Effective in Getting a Commodity to Those Who Need It Most?

Using a simple formal model, the present paper analyzes under what conditions the price system or crude rationing is more effective in matching up the limited supply of a deficit commodity with those users who need it most. The answer depends in a well-defined way on the distribution of needs and income. Other things being equal, the price system has greater comparative effectiveness in sorting out the deficit commodity and in getting it to those who need it most when wants are more widely dispersed or when the society is relatively egalitarian in its income distribution. Conversely, rationing is more effective as needs for the deficit commodity are more uniform or as there is greater income inequality.