Old and Busted: Tacocopter. New Hotness: 420drone

If the FAA comes through on strict measures to prevent commercial unmanned airborne air transport for small packages, we may have an opportunity to see the Allen-Alchian theorem in action.

The A-A theorem is one of those great blackboard theories in economics that tends to have contestable empirical support. It's pretty simple though: if you add a fixed cost (in this case, the cost of a criminal violation) to differently-priced substitutes, you tilt the relative prices in favor of the higher-priced good. In their textbook examples, that's why you should expect to see the best lobsters exported from Maine, the best apples exported from Washington, etc. Of course, this is holding everything else equal, which is really not the case in produce exporting, so that's why it's hard to find lots of evidence in support of the theorem.

But here, we've got a pair of well-timed exogenous treatment effects. Amazon and Taco Bell would (presumably) like to be able to deliver piping hot books and burritos straight to your door without all the tedious mucking about with roads and the like. But so would your neighborhood drug dealer. The difference is, Amazon and Taco Bell are already mostly compliant with statute law and the relevant regulations of their industries. The drug dealer is already in violation of a number of trafficking statutes, so one additional charge is far less likely to change their decision calculus. If a commercial drone can improve customer service or otherwise improve productivity, it is more likely that they will adopt the technology.

And for those property owners that wish to be unmolested by flyovers, there's much less legal recourse against smugglers than against above-the-board business owners.

The conclusion is clear. If we wish commercial drone operations to be legal and properly regulated in the US (whatever path to regulation is chosen, via tort search or FAA prior restraint), we absolutely must end the coercive, unjust war on drugs.

Tip of the hat to Eli Dourado and Ilya Somin for the idea.

Contracting: Is the Frequent Flier Arrangement Really Voluntary?

This gentleman claims that he was cut off, after the NW/Delta merger, because they "wanted to get rid of all their high-mileage customers."

Appalling ignorance of airline economics aside, should the airline be able to cut off people who complain too much?

Nadie Queiran Volar con la Gorda

I'm no shrinking violet. Yet at 5'11" and tipping the scales somewhere in the neighborhood of 225#, I'm the runt of the EE litter. Our spouses? That's another matter. Mrs. Spivonomist claims doughty Lithuanian yeoman heritage, but even with that pedigree, she wouldn't even qualify for a super featherweight fight. Emma resembles nobody so much as a lithe Audrey Hepburn, and the LMM would struggle to balance the scales against a drinking straw. We're a trio of lumberjacks with dainty little wives, though we do manage to ever so slightly buck the trope of dumb fat guy-with-smart skinny wife by dint of some academic competence.

We've posted before on the topic of Large Folk on Airplanes. Today's big news is Air Samoa, who is raising hackles by a proposal to have a variable airfare schedule based on passenger-plus-luggage weight. Now, depending on the sort of price discrimination algorithm used, the average per-person price for the Euvoluntary Exchange blog crowd might very well be the same before and after. My chubby thunder-tuchus might have to pay a bit more, but my diminutive bride could make up for the difference. Is this euvoluntary? What about if it's not mean-neutral? What's the appropriate cluster? Is it important when you partition median body weight by real income category?

A few days ago, I spilled some pixels defending the notion of equal treatment in the eyes of the law. Do these same arguments extend to equal treatment in the eyes of an industry with high fixed costs or other barriers to entry? Is my BATNA of being unable to fly (to Samoa, for now) sufficiently unattractive that agents of the state should step in and restore... well, "fairness" isn't the right word, since airlines already deploy quite a bit of price discrimination based on whether or not you're a business or a pleasure flyer... "justice", perhaps? Is price discrimination unjust? Is it morally just to hold a passenger accountable for his girth? Most folks seem fine with some price discrimination based on income, on gender (oh yes it's Ladies' Night and I'm feeling right), on age. Not so much on race, on sexual orientation, on political party affiliation (and please note that attitudes, strangely, seem to vary widely based on whether or not the price discrimination is forwarded as either a premium or a discount), so what's the rule? When is it okay to price-discriminate?

More interestingly, why didn't Samoa Air announce a policy where they give discounts to svelte passengers while stealthily hiking base rates under the radar? Airline marketing departments can't still be that obtuse, can they?

Curious stuff.

Airline Travel: Putting Seat Back

Putting the seat back can be pretty bad for the person behind you. Is there a negotiated solution?

Coase might say, "Yes."

But would side payments be okay? Could I offer to give you $20 not to put your seat back? Could you refuse, but then when I get made offer ME $20 to be allowed to put your seat back?

Who "owns" the rights? I think most people say if you sit in a seat, you can put the seat back. Here is a poll: In a recent USA TODAY/TripAdvisor survey that drew more than 6,500 responses, travelers were conflicted: Asked "what's your position on reclining plane seats?" 27% answered, "I have the right to recline," while another 27% said "all seats should be non-reclining." Bringing up the rear: "It's rude to recline" (17%), "I only recline when sleeping" (15%), and "It depends who's behind me" (13%).

But what about mealtime? Should you ask? Should you go slowly?

Three short videos on etiquette. The LMM really hates seat back grabbers.



Thanks to the LMM!

Is a Wad of $20s Coercion, Tipping, or Euvoluntary Exchange?

Ward Boss sends this link.

Question: Is it unethical to make side payments? Are tips unethical? Since the answer is NOT always "yes," when does a tip become unethical?

And the guy who "bought" a seat on 1st Class...how interesting. There, I can the problem the airline has. If I have Gold Medallion status, or take Fundman (who has "Colossus Bestride the World" status, and the issue is "can you sell your seat?" We have made it so you can scalp seats at a concert. How about on a plane? The problem is not just the security issues (which are pretty dumb, if we are both going to be on the plane anyway). The problem is that the airline is trying to segment the market so they can price discriminate. Reselling ruptures the market segmentation necessary for that to work.

So, you can GIVE me your seat in the bulkhead, or even in first class. But you can't SELL it to me.

Side payments can, under some viewpoints, make a choice voluntary. My Duke colleague Jonathan Weiner has done some good work (Wiener 1999, Global Environmental Regulation: Instrument Choice in Legal Context, Yale Law Journal, Vol. 108, January 1999, SSRN Link) on this question. He looks at "beneficiaries pay" rather than "polluters pay" problems in the environment.

Other people would say that side payments are NOT voluntary, and in fact are coercive. Because they would define anything that "makes" me do something I would not otherwise do as coercive. This perspective is discussed (though not explcitly advocated) by another Duke colleague, Ruth Grant (Strings Attached: Untangling the Ethics of Incentives, Princeton U Press, November 2011)

Airline Travel: If the person beside you is "A Passenger of Size," you have to stand?

Should a truly obese person be REQUIRED to buy two seats?

Should the fat person have to sit like the picture above? That's not safe, or comfortable.

This story raises a lot of questions. (I had a similar experience, but since I am a wide-bottom myself the situation spilled over onto the person on my left, also).

Some excerpts from the US Air story:

Liz Landau, a spokesperson for US Airways, confirmed that Berkowitz was inconvenienced by a passenger of size and told msnbc.com “it was his choice to stand.”

“His seatmate had the same right to his seat as Mr. Berkowitz did to his. So here’s where the diplomacy and cooperation of all passengers comes into play,” the airline said in a statement.

Berkowitz was unhappy with the $200 voucher the airline offered him for his experience, at which point he contacted (consumer advocate) Elliott. (NOTE: TICKET WAS $800)

"We have attempted to address this customer’s service concerns,” the airline statement said, “but offering increasing amounts of compensation based on a threat of a safety violation isn’t really fair — especially when the passenger himself said he didn’t follow crew members’ instructions and fasten his seatbelt.

“The way to ensure you have space available next to you — whether you are a person of size, or you would simply like to ensure you have more personal space to relax on a long flight — is to purchase that additional seat, or First Class, in advance.”

This is remarkable, even for the putzes who run US Airways. Each passenger has the same rights to his/her seat.... unless the person is fat, and then they get 1.5 seats or more. If you can't buckle your seatbelt, because El Gordo is flowing over onto your seat, then you are refusing to "follow crew members' instructions."

Finally, and most remarkably, the displaced man was at fault. US Airways suggests that HE should have purchased two seats, if he wanted "more personal space to relax."

Three parties here. Who is obliged to make accomodations? The jumbo? The displaced passenger? Or the airline?

And then what about tall people? If the guy behind me is very tall, does that mean that I can't put my seat back? Comments here, on same story and also tall issue, are interesting.

Can reputation solve this problem? For me it does. I would prefer either to drive, or just not go, if the only option is the pirates at US Airways. But US Airways is not bankrupt, so clearly this aggressive indifference to customer safety and comfort is not a threat. The airline can get away with imposing all the costs on the customers, because the customers are too sheeplike to fight back.

But clearly this was not a euvoluntary exchange, where the passenger agreed to give up his seat. His only choices were to stand up, or forfeit his $800 ticket completely.

The solution: one of those box things they use to check carry ons (only they don't, really).

But you could have a seat, with the armrests bolted down. If you don't fit in that seat, you have to buy two.

(nod to Mark Steckbeck)