Aaron Schiff
aschiff 26 at gmail dot com

Economics of volcanos and flights

From Tyler Cowen, an interesting tradeoff:

When the alternatives are “fly” vs. “no fly,” however, enough days of “no fly” mean the end of the firm. That causes the airline to favor flight resumption before it is socially optimal to do so. The safer outcome — not flying — doesn’t involve higher revenue, as it often does, such as when the roller coaster manufacturer puts in seat belts to assuage nervous parents and thus boost demand.

On the other side of the ledger, I suspect the regulators won’t let the airlines charge market-clearing prices for the first week of resumed flights

There is some kind of discontinuity here — normal marginal improvements to safety should allow airlines to charge a bit more.

April 21st, 2010 in Aviation Economics
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