Post-Hurricane-Irene Business Ethics Roundup

Natural disasters put all kinds of pressures on the behaviour of otherwise-civilized people, and they almost always raise business ethics issues. Here are a few little issues that popped up over the weekend, while hurricane Irene was wreaking havoc on the east coast of North America.

First, a bit of price gouging: Brooklyn’s posh Hotel Le Bleu squeezed Irene shelter seekers for $999 per room

A trendy Brooklyn hotel generated a flood of cash from Irene, jacking up the price of a room to $999 a night on Saturday as the powerful storm zeroed in on New York, employees said….

As I’ve written before, raising prices during a disaster isn’t always unethical — sometimes higher prices provide an incentive for others to rush to send resources to disaster-stricken areas, and sometimes higher prices give citizens an incentive to avoid overusing scarce resources. I’m pretty sure neither of those rationales applies here. [Update: see the hotel's reaction, in the Comments section below.]

The flip-side of the price-gouging story is this one: “Generators, batteries big sellers ahead of Irene”. You can learn a lot about the ethics of pricing by contemplating why hardwares stores generally didn’t jack up their prices. (Yeah, there are anti-price-gouging laws in many jurisdictions, but that’s likely not enough to explain why prices stay stable.) Note that this story mentions that “…an Ace Hardware in Nags Head, N.C., the store sold out of portable generators.” The fact that the store sold out pretty certainly means that some customers went away disappointed. And it’s entirely possible that some of the disappointed needed the generators a lot more than the people who actually got them. Should Ace have found some way of asking customers how badly they needed a generator, or should they have raised the price a bit to make sure that people who bought one really needed one?

Next, from Katy Burne, blogging for the WSJ (just before the storm), “Hurricane Irene Whips Up Trading In ‘Catastrophe Bonds’”. Here’s the technical bit:

Catastrophe bonds, known in the insurance industry as “cat” bonds, are structured securities that allow reinsurers to transfer their own risks to capital-market investors. Investors in cat bonds earn regular payments in exchange for providing coverage on a predetermined range of natural disasters for a set period of time.

Note the similarity here to the controversial practice of short-selling stocks. In shorting stocks in a particular company, a trader is betting that the value of that stock is going to go down — that is, betting that the company will do poorly. Many people find that distasteful. Some have even called it unpatriotic. In buying (or in shorting) ‘cat bonds,’ an investor is wagering on human misery. But note that that’s what insurance companies do, too, and none of us wants to be without those.

Next, there have been a few stories about companies helping out by either donating goods or by fundraising for disaster relief (see here and here, for small examples). Many more such stories have no doubt gone unreported. It’s also been noted that some companies are going to benefit from the storm, especially if (like Home Depot) they sell goods that will be needed for reconstruction. Is there anything wrong with that? (See here for a previous blog entry on profiting from disaster relief.)

Finally, the key business-ethics stories to watch, over the next few days, are about insurance claims. Insurance firms are happy that losses look to be lower than expected. But stories will inevitably pop up about consumers having difficulty getting insurers to pay up. This will, again inevitably, be portrayed as heartless. And in some cases it may well be heartless. In other cases, we’ll simply see that people generally fail to understand the economics — and the ethics — of insurance.

2 comments so far

  1. Hotel Le BLeu on

    HOTEL LE BLEU OFFICIAL RESPONSE

    **WRITING IN ALL CAPS TO INDICATE OFFICIAL RESPONSE, NOT TO INDICATE YELLING. THANK YOU FOR YOUR PASSIONATE COMMENTS AND NOTES. LET US BE CLEAR THAT WE DID NOT PRICE GOUGE, NOR HAD ANY INTENTION TO DO SO. OUR HOTEL NEVER POSTED A $999 RATE ON OUR WEBSITE OR QUOTED ANY PERSON ON THE PHONE OF SUCH RATE. THIS WAS STRICTLY AN EXPEDIA (AND AFFILIATES) PUBLISHED RATE. WE ARE GOING THROUGH PROPER CHANNELS AT EXPEDIA FOR A PROPER EXPLANATION WHICH CAUSED OUR HOTEL UNNECESSARY SCRUTINY WITH OUR LOYAL GUESTS AND MOST IMPORTANTLY, THE COMMUNITY WE LOVE TO BE PART OF. THE HIGHEST RATE ANY GUEST PAID THIS WEEKEND AT OUR SOLD-OUT HOTEL WAS $269/NIGHT.

    WE HAVE TAKEN THE PROACTIVE ACTION TO REACH OUT TO ATTORNEY GENERAL OFFICE OURSELVES AND THE BOROUGH PRESIDENT’S OFFICE THIS MORNING TO CLEAR UP THE CONFUSION. WE HAVE ALSO SPOKEN TO OREN, THE PUBLISHER OF THIS ARTICLE, AND HE IS CLEAR ON THE MISUNDERSTANDING TOO.

    WE HOPE TO CLARIFY FOR OUR LOYAL GUESTS, PRESENT AND FUTURE. WE STRIVE TO THE BEST COMMUNITY PARTNERS IN PARK SLOPE AND THE GREATER BROOKLYN AREA.

  2. Chris on

    Why would it be more distasteful to sell short, than doing it the ” traditional” way of buying to enter and sell to exit? It’s just another way of making money when stocks fall. Investors does not weaken the market further, they use a bearing market when stock markets are falling, hence taking advantage of a market during recession, they don’t create a weaker market. Instead of fighting a downward market we should learn how to make money from it. There are many years left before deficit problems and euro market problems are solved, so making money from a downward market will be more and more common than going long, instead of fight it, swim with it.


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