Assume that your neighbor turns up the volume just when you want to sleep. Although her property rights include her apartment, the sound spills beyond… to your property.
Similarly, with that airline ticket you just purchased, you get some temporary property rights. You get a seat and also the right to recline. As you know, this is where—like with a neighbor’s loud music—the problems start. Leaning back, you have entered someone else’s “property.”
On a recent United flight between Newark and Denver, when a man used a $21.95 Knee Defender to prevent the woman occupying the seat in front of him from reclining, she threw a cup of water at him. Diverting, the pilot landed in Chicago, ejected those two troublesome passengers, and continued to Denver. They arrived 1 hour and 38 minutes late.
Almost everyone on this flight suffered from a negative externality. Just as loud music results in a negative externality for apartment dwellers, a reclining flier creates a negative externality for the person in the seat behind him. Meanwhile, everyone on that United flight had a negative externality because of the delay.
You can sort of see how the Knee Defender prevents a seat from reclining:
The Bottom Line and a Coase Solution
What to do? Thinking of the recliner, an economist would have suggested some Coase-style negotiation.
Nobel laureate Ronald Coase told us that externality problems can be privately solved when transaction costs are low and the cost/benefit numbers make it feasible. With our airplane dispute, let’s say the woman feels it is worth $50 to recline and the man seated behind her thinks the cost of the discomfort is $75. If she gave him $60 or any amount between $50 and $75, everyone could be happy.
Other solutions leave us with less choice. United could have charged for the right to recline or installed the stationary seats that Spirit and Allegiant have on their planes.
Our bottom line: The Knee Defender dispute was really about property rights and a negative externality.Read More