The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd


  • J. Peter Neary
Reference work entry


Rationing occurs whenever economic agents face quantity constraints on their demand for or supply of particular commodities. This article reviews the main results of rationing theory: a tightening of a ration constraint raises the demand for unrationed substitutes and reduces the price responsiveness of all unrationed goods (the Le Chatelier effect). It shows how the technique of virtual prices can be used to generalize these results to the case of strictly binding rations, and briefly reviews some applications, empirical and theoretical, of rationing theory to public and environmental economics, fix-price macroeconomics, and the effects of quotas on international trade.


Compensated demand Demand price Fixprice macroeconomics Income effects International trade theory Labour supply Le Chatelier principle Nonlinear budget constraints Nonlinear commodity taxation Public goods Quotas Rationing Reservation price Separability Shadow price Substitution effect Uncompensated demand Unemployment Virtual price 

JEL Classifications

This is a preview of subscription content, log in to check access.


  1. Anderson, J.E., and J.P. Neary. 1992. Trade reform with quotas, partial rent retention and tariffs. Econometrica 60: 57–76.CrossRefGoogle Scholar
  2. Deaton, A.S. 1981. Theoretical and empirical approaches to consumer demand under rationing. In Essays in the theory and measurement of consumer behaviour in honour of Sir Richard Stone, ed. A. Deaton. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
  3. Deaton, A., and J. Muellbauer. 1981. Functional forms for labour supply and commodity demands with and without quantity constraints. Econometrica 49: 1521–1532.CrossRefGoogle Scholar
  4. Guesnerie, R., and K.W.S. Roberts. 1984. Effective policy tools and quantity controls. Econometrica 52: 59–86.CrossRefGoogle Scholar
  5. Hausman, J.A. 1985. The econometrics of nonlinear budget sets. Econometrica 53: 1255–1282.CrossRefGoogle Scholar
  6. Neary, J.P., and K.W.S. Roberts. 1980. The theory of household behaviour under rationing. European Economic Review 13: 25–42.CrossRefGoogle Scholar
  7. Neary, J.P., and J.E. Stiglitz. 1983. Towards a reconstruction of Keynesian economics: Expectations and constrained equilibria. Quarterly Journal of Economics 98(Supplement): 199–228.CrossRefGoogle Scholar
  8. Roberts, K. 1999. Rationality and the Le Chatelier Principle. Journal of Economic Theory 87: 416–428.CrossRefGoogle Scholar
  9. Rothbarth, E. 1941. The measurement of changes in real income under conditions of rationing. Review of Economic Studies 8: 100–107.CrossRefGoogle Scholar
  10. Samuelson, P.A. 1947. Foundations of economic analysis. Cambridge, MA: Harvard University Press.Google Scholar
  11. Tobin, J., and H.S. Houthakker. 1950–51. The effects of rationing on demand elasticities. Review of Economic Studies 18: 140–153.Google Scholar
  12. Weitzman, M. 1977. Is the price system or rationing more effective in getting a commodity to those who need it most? Bell Journal of Economics 8: 517–524.CrossRefGoogle Scholar

Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • J. Peter Neary
    • 1
  1. 1.