Bounded rationality, and international egg smuggling from Mexico

New Zealand has an egg shortage, but we are not alone. The US is also suffering an egg shortage, but for a different reason. In New Zealand, the shortage arose because of a ban on battery caged eggs, as well as supermarkets choosing to no longer sell colony caged eggs as well (see here). In the US, it's because of avian influenza killing egg-laying chickens.

The egg shortage has led to an interesting side effect in the US, as NPR reported last week:

As the price of eggs continues to rise, U.S. Customs and Border Protection officials are reporting a spike in people attempting to bring eggs into the country illegally from Mexico, where prices are lower...

A 30-count carton of eggs in Juárez, Mexico, according to Border Report, sells for $3.40. In some parts of the U.S., such as California, just a dozen eggs are now priced as high as $7.37.

Shoppers from El Paso, Texas, are buying eggs in Juárez because they are "significantly less expensive," CPB spokesperson Gerrelaine Alcordo told NPR in a statement.

In New Zealand, rational egg consumers have switched to buying their own chickens. In the US, they are becoming international egg smugglers. To see why, consider how a rational egg consumer would respond to the egg shortage.

Mexican eggs and US eggs are substitutes. When the price of one substitute increases, or one substitute becomes unavailable, some consumers will switch to the other. In this case, some rational consumers want to switch from US eggs to Mexican eggs. However, because Mexican eggs are banned from import to the US (more on that in a moment), the only way for egg consumers to get Mexican eggs is to smuggle them into the country. That comes with costs in the form of the risk of fines, if the smuggler is caught. However, if consumers aren't aware of the fines (and it appears from the story that many are not), then these boundedly rational consumers would not take those costs into account (we call these smugglers boundedly rational, because they lack full information so their rationality is bounded). These boundedly rational consumers would engage in more egg smuggling than they would if they took the costs of getting caught into account. That explains the huge increase in egg smuggling.

Now, the ironic thing about this whole situation, from the same NPR story:

Eggs from Mexico have been prohibited by USDA since 2012, "based on the diagnosis of highly pathogenic avian influenza in commercial poultry."

So, an egg shortage, caused by avian influenza in the US, cannot be alleviated by importing eggs from Mexico, because of a 2012 rule designed to keep avian influenza out of the US. Sometimes, the craziness of international trade rules is just too much to bear.

[HT: Marginal Revolution]