Friday 29 August 2014

How to misunderstand the Coase theorem 3 (updated)

From the comments on one of my previous posts comes this from Economists Do It With Models
Actually, one of the articles on the subject mentioned that the SeatDefender device that was used was not allowed, which would imply that the property rights are at least implicitly assigned to the recliner.
I have not seen that. But if true then the airline just has to make clear what the property right is and let bargaining take place or while the SeatDefender may be illegal it still doesn't necessarily mean that property rights have been defined. Use of the device may just be an attempt at "homesteading" legroom.

Update: Economists Do It With Models has kindly provided the source that mentions the device being banned:

Also from the Environmental and Urban Economics blog comes an Update:
Yes, I am well aware that the Coase Theorem assumes that property rights are well defined and agreed upon (so some have said that the Coase theorem does not apply here) but what is interesting about this case is that the airline has not established these rules. It is also interesting that transaction costs precluded the ability of others on the plane to offer their seat to the woman who wanted to recline because this simple solution would have resolved this "crisis". Nobody gained by landing the plane in Chicago. People lost time, they had to land and takeoff one more time. The Coase theorem assumes a smooth redistribution of resources but instead resources were destroyed in this multi-player interaction. This should interest economists.


Mike said...

There are no undefined property rights here: either the airline has temporarily allocated seat-usage rights to customers or the airline has retained those rights.

It is reasonable to believe customers gain the temporary right to use of all seat capability of a normally functioning seat. (If for instance a seat malfunction allowed a seat to recline entirely into the seat behind, whereas well-functioning seats only reclined by a few centimeters, only the normal amount of reclining is part of the customer's license. Also, of course, customers cannot manually adjust their seat in ways to gain additional centimeters of recline.)

With rights well-defined, there are no externalities. A device such as SeatDefender is simply an attempt to prevent a neighbor from exercising the full range of the neighbors rights.

Paul Walker said...

Mike. The problem is that the airline has not clearly defined what the rights are. It should say you can or can not recline, then people could bargain if they want to.