That’s what this post below on Economists do it with Models asks. (By the way when we say models we mean mathematical or econometric models, not attractive members of the opposite sex. We’re talking about economists come on!)
I thought it was an interesting question. The responses in the comments generally seemed to be well, people would think you’re a creep or its just not done. But that doesn’t explain why the custom.
I think it’s at least partially that the cost of negotiation would be high relative to the benefits, also know as transaction costs. In the seat case you only have one person that can supply you more legroom, and only one person you can sell it to. There no multitude of buyers and sellers to quickly establish a market price, and no market. There’s no single price sell your right to recline to at a price that you know is as good as you’d get.
Furthermore, there could be an incentive to move people around on the plane and that would also impose costs on others beyond the folks wanting more legroom or more space.
Ideally a market in space behind the seat would I think result in roughly interspaced, people who don’t mind not reclining with people behind who don’t want anyone reclining into their state and seats with those who want to recline with a person not bothered by that (perhaps a small person who is not going to use a laptop) behind. This might mean a lot of seat switching that could delay takeoff.
Fun With The Coase Theorem, Airplane Seat Edition…
Mon, 14 Mar 2011 22:27:42 GMT
I am firmly of the belief that people intuitively understand economic principles, even if they don’t consciously recognize them as such. Case in point, from The Consumerist:
It *is* quite an idea, Consumerist readers…in fact, it’s closely related to the Coase theorem. The Coase theorem is best illustrated via an example. From Wikipedia:
Coase developed his theory when considering the regulation of radio frequencies. Competing radio stations could use the same frequencies and would therefore interfere with each others’ broadcasts. The problem faced by regulators was how to eliminate interference and allocate frequencies to radio stations efficiently. What Coase proposed in 1959 was that as long as property rights in these frequencies were well defined, it ultimately did not matter if adjacent radio stations interfered with each other by broadcasting in the same frequency band. Furthermore, it did not matter to whom the property rights were granted. His reasoning was that the station able to reap the higher economic gain from broadcasting would have an incentive to pay the other station not to interfere. In the absence of transaction costs, both stations would strike a mutually advantageous deal. It would not matter whether one or the other station had the initial right to broadcast; eventually, the right to broadcast would end up with the party that was able to put it to the most highly valued use. Of course, the parties themselves would care who was granted the rights initially because this allocation would impact their wealth, but the end result of who broadcasts would not change because the parties would trade to the outcome that was overall most efficient. This counterintuitive insight—that the initial imposition of legal entitlement is irrelevant because the parties will eventually reach the same result—is Coase’s invariance thesis.
Now, I’ll take a bit of creative license and modify the example for the situation at hand:
Econgirl developed her theory when considering the regulation of airline seat reclining. Competing airline customers could use the same space and would therefore interfere with each others’ enjoyment of the flight. The problem faced by regulators was how to eliminate interference and allocate space to airline passengers efficiently. What Econgirl proposed in 2011 was that as long as property rights in these spaces were well defined, it ultimately did not matter if adjacent airline passengers interfered with each other by trying to occupy the same space. Furthermore, it did not matter to whom the property rights were granted. Her reasoning was that the passenger able to reap the higher economic gain from taking up space would have an incentive to pay the other passenger to get out of the way. In the absence of transaction costs, both passengers would strike a mutually advantageous deal. It would not matter whether one or the other passenger had the initial right to take up space; eventually, the right to spread out/recline/etc. would end up with the party that was able to put it to the most highly valued use. Of course, the parties themselves would care who was granted the rights initially because this allocation would impact their wealth, but the end result of who takes up space would not change because the parties would trade to the outcome that was overall most efficient.
For example, if reclining your seat is worth $5 to you, but being able to put my laptop on the tray table is only worth $3 to me, it is efficient for you to recline and me to find another place to put my laptop. If we could negotiate and pay each other off, you will end up reclining your seat regardless of what the airline tells us is the “proper” thing to do. However, if the default is for the stewardess to tell you to not be a jackass and keep your seat up, I will end up with somewhere between $3 and $5 in my pocket as a result of the subsequent negotiation. If, on the other hand, the stewardess tells me to suck it up and let you recline, I won’t get squat in compensation except for perhaps another bag of Doritos munchie mix because the stewardess knows that I’m cranky.
It’s important to note that Coase’s argument only holds when there are no costs or barriers to bargaining. In practice, the efficient outcome may not be reached if the guy behind you thinks you’re a big creeper because you try to pay him in return for him not complaining about the position of your seat. Not that I’ve tried or anything. I’m also pretty confident that it’s only a matter of time until the airlines figure out how to capture the payouts for themselves rather than keeping them within the affected parties…which technically doesn’t affect the efficiency of the outcome but certainly affects the distribution of value.