Wednesday, October 19, 2005

Shanghai Follow-up

I just posted two days ago about the booming construction market in China. Further evidence is this article on scrap metal thieves in Shanghai:
Being bolted down is not enough in booming Shanghai where a crackdown has begun on scrap metal thieves stealing phone booths, traffic lights, manhole covers and wiring. Tempted by soaring prices for metal, thieves stripped one residential compound of two thirds of its fire extinguishers.
This is a good application of how high demand for one good (construction) affects other markets (high demand for scrap metal). My guess is that stealing scrap metal is partially a result of the inelastic supply of scrap metal, which makes the price change from an increase in demand higher. Since the supply of scrap metal in the short run cannot increase very much, thieves are stepping in by taking existing structures and turning them into scrap metal to take advantage of the high prices.

4 comments:

Carl Youngdale said...

Allow illegal, this situation fits economic thinking just fine. The Shanghai thieves obviously hold benefits of stolen scrap metal (monetarily free) over the costs of stolen scrap metal (prosecution in a communist country, ouch). Rational behavior still applies here. Those guys need scrap metal to keep their construction companies afloat, so they weigh their options, decide what best suits them and then act. The only way to get more scrap metal would be starting a firm, a scrap metal firm, if you will, that successfully and legally undercuts the thieves. I believe it can be done, now it's up to the Chinese to do something about it.

Carl Youngdale said...

Whoops, I meant "Although" instead of "allow," my bad.

Elisabeth Bentley said...

In agreement to Carl, the thieves do figure the monetary benefits of such an action would outweigh the marginal costs as they continue with such actions. I believe in such a situation the Shanghai government would be wise to set a price ceiling on the cost of metal, thus reducing the benefits of such objects and therefore causing a reduction in thievery.

It is surprising, however, that they are stealing objects created to actually benefit themselves, such as stealing man hole covers and fire extenguishers. I wonder if they will reconsider their weighing of benefits and costs when they fall into a sewer or die in a fire...

Nic Neinken said...

This is very interesting. The Shanghai Scrap Stealers are taking metal of any kind and selling it. Well I guess if demand is great enough and prices are high enough then people will do nearly anything. Although this is extremly illegal (or at least it should be), it is good for the economy. There is a shortage of metal and so the high prices that come along with a shortage have encouraged more people to take metal that they feel is not being used and put it back into the market. Even though this is good for the economy it is bad for the government because soon people may be stealing other things that are even more important... Grandma just died and has a titanium hip. why not sell it? She doesn't need it any more... You understand where I'm going with this. It could lead to chaos. Even worse than it is right now. Although stealing stop lights and fire extinguishers is pretty chaotic.
I disagree with Elizabeth however, I beleive that a price ceiling would only make this situation worse because demand is so high right now becuase of Shanghai's booming construction market. Making a price ceiling would only increase the shortage. The best situation in this case would be for consrustion companies to move to a different location or to bring in Scrap Metal from other parts of the world. Carl's idea is pretty good though. He likes the idea of creating a firm to sell metal and that would help regulate the sales of scrap metal in the market. It would also bring in more metal to sell.