There are three reasons that letting prices rise is socially desirable. First, keeping prices fixed when demand rises after a disaster produces shortages that require other forms of rationing, such as waiting in line. Waiting in line doesn’t keep the cost down; it just adds the cost of people’s time to the monetary price ..
This process of deciding whether the higher price is worth it points to the second advantage of letting prices rise. A higher price induces consumers to prioritise their purchases ..
The third benefit of letting prices rise might be the most important. Prices are not just abstract numbers, they are knowledge wrapped in incentives. In the words of economist Art Carden (see short video here), they are like a signal flare that can be seen for miles. If prices are allowed to rise, it will attract new supplies of the shortage good into the stricken area. A high enough price will both inform and incentivise sellers of that good who are some distance away to pay the transportation costs of moving some of their stock into the disaster zone. Higher prices might also lead some people who normally engage in other forms of economic activity to switch over to trying to sell stocks of the good in question by buying it up in one place and transporting it to the area facing the shortage.
.. Letting prices rise in the immediate aftermath of a disaster does not mean they will stay there forever. Like the signal flare, they only need to activate for a short period to perform their function. Once the price signal is allowed to function, the response by entrepreneurs will, without the force of law, push prices back down toward their pre-disaster level.