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    Airline Overbooking

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    Hania Asad
    The document discusses airline overbooking and how the Coase Theorem could apply. It notes that airlines have a property right to seats sold and passengers have a right to the seat purchased. It also notes that transaction costs are relatively low for airlines to deal with overbooking through compensation or alternative flights.

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    Airline Overbooking

    Uploaded by

    Hania Asad
    29 views6 pages
    The document discusses airline overbooking and how the Coase Theorem could apply. It notes that airlines have a property right to seats sold and passengers have a right to the seat purchased. It also notes that transaction costs are relatively low for airlines to deal with overbooking through compensation or alternative flights.

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    The document discusses airline overbooking and how the Coase Theorem could apply. It notes that airlines have a property right to seats sold and passengers have a right to the seat purchased. It also notes that transaction costs are relatively low for airlines to deal with overbooking through compensation or alternative flights.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    29 views6 pages

    Airline Overbooking

    Uploaded by

    Hania Asad
    The document discusses airline overbooking and how the Coase Theorem could apply. It notes that airlines have a property right to seats sold and passengers have a right to the seat purchased. It also notes that transaction costs are relatively low for airlines to deal with overbooking through compensation or alternative flights.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 6

    Airline Overbooking & Passengers

    Coase Theorem:
    The Coase Theorem argues that under the right conditions parties to a
    dispute over property rights will be able to negotiate an economically
    optimal solution, regardless of the initial distribution of the property
    rights. The externalities can be either positive (beneficial) or negative
    (harmful). When there is no externalities then the transaction cost is
    zero.
    According to our case study of airline overbooking and passengers
    these can be negotiated and reach efficient outcomes when there's a
    potential externality or conflict of interest between the two parties.
    Here is how the Coase Theorem could be applied to airline overbooking
    and passengers:
    1. Property Rights:
    The property rights is that the airline has a property right to the
    seats it sells, and passengers have a property right to the seat
    they purchased. The airline also has a property right to the
    potential revenue it would earn from a fully booked flight.

    2. Zero Transaction Cost:


    Transaction costs in this context are relatively low compared to
    some other situations because airlines have established
    procedures for dealing with overbooked flights, such as offering
    compensation or alternative flights.
    Q. What are the key characteristics that define airline as a private
    good?
    Airline services exhibit characteristics of a private good in economics.
    Private goods are characterized by specific attributes that distinguish
    them from public goods. Airlines are typically privately owned and
    operated by companies or corporations. These companies have control
    over the supply of airline services and can adjust pricing, schedules, and
    other aspects of service provision based on their business goals.
    Passengers have a choice when it comes to selecting an airline and
    purchasing tickets. They can consider factors such as price, schedule,
    airline reputation, and amenities when making their purchasing
    decisions. Prices for airline tickets can vary based on factors such as
    demand, seat availability, and booking class. This allows airlines to
    respond to changes in market conditions and consumer preferences.

    Q. How does pollution contribute to market failure in the provision of


    clean air?
    Pollution contributes to market failure in the provision of clean air
    primarily because it creates negative externalities, which are harmful
    side effects of economic activities that affect third parties who are not
    directly involved in those activities. In the case of pollution and clean
    air, these negative externalities can lead to inefficient outcomes in a
    free-market system. These pollutants can have adverse effects on the
    environment and public health. However, the costs associated with
    these adverse effects are not borne by the polluters themselves but are
    externalized to society at large. These external costs include health care
    expenses, environmental cleanup, reduced quality of life, and climate
    change-related costs.
    Q. How has the government policy, such as environmental
    regulations, attempted to address the market failure associated with
    airline?
    Governments around the world have established emissions standards
    for aircraft engines to limit the amount of greenhouse gases, nitrogen
    oxides (NOx), and other pollutants that aircraft can emit. These
    standards are designed to reduce the environmental impact of aviation
    by promoting the development and use of more fuel-efficient and
    cleaner aircraft technologies. Noise pollution from aircraft can be a
    significant concern for communities living near airports. Government
    policies, including noise regulations and curfews, aim to mitigate the
    impact of aircraft noise on residents' quality of life. These regulations
    often establish noise limits for aircraft and restrict nighttime flight
    operations. Tax incentives or deductions may be provided to airlines
    that invest in eco-friendly technologies or engage in activities that
    reduce their environmental impact. These government policies and
    regulations are designed to internalize external environmental costs,
    encourage the adoption of cleaner technologies, and promote
    sustainable practices within the airline industry. By doing so,
    governments aim to mitigate the market failures associated with
    negative externalities, such as air pollution and greenhouse gas
    emissions, while fostering a more environmentally responsible aviation
    sector.
    Q. What are the economic and health consequence of aircraft
    pollution, and how are they related to the private goods problem?
    The relationship between aircraft pollution and the private goods
    problem is related to the concept of negative externalities. Aircraft
    pollution is a classic example of a negative externality, where the costs
    associated with pollution (both economic and health-related) are not
    fully borne by the producers (airlines) or consumers (passengers) of air
    travel. Instead, a significant portion of these costs is externalized onto
    society at large, including nearby communities and future generations.
    Because airlines do not directly bear the full cost of their pollution, they
    may not have sufficient incentives to reduce emissions or invest in
    cleaner technologies. This leads to the overproduction of air travel and
    the underinvestment in more environmentally friendly alternatives,
    creating a market failure. To address this market failure and internalize
    the external costs of aircraft pollution, government policies and
    regulations, as mentioned earlier, may be implemented. These policies
    aim to impose taxes, emissions limits, and other measures that
    encourage airlines to reduce their environmental impact and promote
    the provision of cleaner air. In doing so, governments aim to strike a
    balance between economic growth and environmental protection while
    mitigating the negative consequences of aircraft pollution.
    Airline Overbooking and Passengers

    Submitted By:

    Hania Asad (417405)

    BS Economics Section A 2k22

    Submitted to:
    Dr. Irfan Malik

    National University of Sciences and Technology (NUST)

    3rd Semester, 2023

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