Air Coase

By Eric Crampton 14/02/2013

No matter how much the screaming baby on an airplane annoys you, it really isn’t imposing a Pareto-relevant externality. Recall that a Pareto-relevant externality is one where there are gains from trade that fail to obtain. The airline here is residual claimant: if it could earn more by having baby-free flights, or by restricting children to some segments of the airplane, it would do it. Airlines aren’t going to throw money away by failing to implement baby-abatement policies if implementing them would earn them higher profits. Absence of baby-abatement airline policies is then evidence that inconvenience imposed on parents by a change in policy outweighs the inconvenience babies impose on other fliers.

Turns out there are two airlines that cater to demand for kid abatement.

Malaysia’s two main airline groups have provided a way through the morass by creating kids-free zones in their biggest planes on long-haul routes.
Malaysia Airlines went first in 2011 when it banned kids in first class on its 747s and extended the policy in 2012 when it introduced the superjumbo A380 on twice-daily flights from Kuala Lumpur to London.
The A380 kids policy applies only to the upper deck’s tiny economy section of 70 seats behind the 66 seats in business class. However, it’s not an outright ban: the airline still has bassinets in the upper deck economy section and will allow kids if there’s a kids overflow from the lower deck.
In any case, there are still baby bassinets on the upper deck in business class, so MAS is simply trying to make the upper deck quieter than it otherwise might be.
AirAsia X, which flies from Kuala Lumpur to the Gold Coast, Sydney, Melbourne and Perth and now has an interlocking shareholding with Malaysia Airlines, this month also introduced kids-free “quiet zones” in the forward section of its economy class, where kids under 12 aren’t allowed. If you want a seat in the quiet zone, it’s offered as an optional extra for which a surcharge applies.
“The airline is not banning kids from travelling, but instead, is enhancing the array of product offerings on board to suit its guests individual needs and preferences,” says AirAsia X chief executive Azran Osman-Rani.

I love it when a Coasean-bargaining plan comes together.

There are situations where there are real Pareto-relevant costs imposed on you by other fliers despite the airline being residual claimant: government policy in some countries makes it illegal for airlines to charge heavy fliers more, or to require them to take an extra seat. Governments thereby create market failures by externalising the internality.

0 Responses to “Air Coase”

  • I dunno about that – I can imagine that having baby-free planes, or planes where babies are restricted to a certain section, could get an airline a helluva lot of bad press from spitting-mad parents all over the world.

    I have to say, though, I am always unimpressed when someone thinks that their rights to take a newborn, often very unhappy and confused, baby on a plane trump the rights of all of the other people who’ve paid good money for the trip too, and now have to deal with the extra stress of a screaming child. It’s also insanely unfair on the poor kid.

    Added to that, I’ve seen a newborn experience serious breathing difficulties due to the air pressure changes/lack of air generally on the plane…

    I think parents who’re bringing babies on board should be charged the surcharge, not the other passengers on the plane, who’re not bringing another person, and potential disruption, onto the plane with them.

    I have no doubt that there are ways for parents to be a little less selfish. I think we should expect the same social courtesy of parents and their children as we do of everyone else.

    • Either way works. In a Coasean world, we’re setting whether the default is that babies have the right to be there, and others have to pay for abatement, or whether the default has no babies and parents have to pay extra for the inconvenience they impose. The airline chooses the default / fee setup so as to maximise profits and passengers can choose among airlines… I’ve no particular basis for thinking they’re getting that choice wrong.

      When we flew with Ira the first time, I bought a bunch of small bags of M&Ms. We put a note on each one “Hello, my name is Ira. I’m 8 months old. This is my first time on an airplane. I hope everything goes well. But if it doesn’t, I hope this makes things better.” He was mostly good during the flight and enjoyed lots of smiles from the folks around him.