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Putting some Coase in your airline coaster

May 20, 2017

Read here:

 

https://evonomics.com/resolve-fights-reclining-airplane-seats-use-behavioral-economics/.

 

The proposal, by Professor Christopher Buccafusco of Cardozo Law School and Professor Christopher Jon Sprigman of New York University Law School, to have people buy the right to recline on a flight is interesting. I have long legs, and I'm not sure how much I would pay to recline, but certainly I would pay something, especially on a long flight.

 

My own framing of this issue is a bit different. I've never really minded when others recline in front of me as long as I can recline too. I tend to think of this "flying game" more as a "driving game." In the driving game, there are two pure-Nash equilibria, drive right or drive left. (A Nash equilibrium is the outcome or set of outcomes that follows from each player's rational strategy based on the other player's expected rational strategy, and in which neither party has an incentive to deviate).

 

So you can set up a regime in which driving is on the left, like the UK, or on the right, like the US. The problem is when the rule is unclear, which can be dangerous, even fatal! In Coasian bargaining, the goal is generally to set the default rule where most would prefer it to have been had the parties thought about it and negotiated the result in advance. In a simplified form, the Coase theorem states that in a world in which it is easy to transact and everyone has reasonably good information, we can resolve rights allocations efficiently through bargaining. The problem is that these assumptions are often unrealistic, and, as a result, the default rules tend to matter when transactions costs are high. Social norms can create high transaction costs.

 

The flight game is complicated by the very last row, where seats cannot recline. This is one more reason (beside having all the folks waiting for the restroom block the aisle and having to wait until the end to get off the plane) why getting stuck there is so undesirable. If those in the back row push back (well, actually, push forward), then the whole recline option, in theory, could fall part (or "unravel") at least up to the natural break point. On most planes, the break point is the emergency exit row. (A good place for some leg room).

 

The study authors recognize that this is not pure Coase. They show that how much folks are willing to pay, or be paid, turns on where the property right lies initially. In other words, it depends on endowment effects. (Studies show that under some circumstances, people tend to value what they have more than they would be willing to pay to get it if it belonged to someone else.)

 

Who should have the property right, in Coasian terms, depends on two things: (1) who places a higher value on it, and (2) whether it is possible to change the rule through bargaining (the transactions cost problem). It is safe to assume that social norms make formal bilateral bargaining over reclining unlikely. And so wherever the right is initially vested (right now with the recliners) is where it is apt to stay, unless that norm is changed, for example by having airlines facilitate bargaining by charging in advance to recline, or charging in advance to be in a seat in which the person seated in front of you does not recline.

 

In the end, I still think that the driving game better captures the dynamic of flight reclining. Losing four inches of space matters more than whether you have it in a reclining, or non-reclining, position. The problem is when the seat in front of you is permitted to recline, and you are not. The best way to resolve this might be to have a recline and non-recline seating section and let people select. The airlines could then to assess which seating is in greater demand. As for me, I'll take the recline.

 

As always, comments are welcome.

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