Airline Terrorism Insurance

You've probably read Annie Jacobsen's frightful tale about the band of Syrian musicians with whom she shared a flight. Over at Slate, Steve Landsburg (one of my favorite economists) has a suggestion to make such situations go more smoothly:

Just because you detain particular people, it doesn't follow that you've got to treat them unfairly. Being detained and questioned is a burden; it's inconvenient and it's demeaning. But there's no reason that burden has to be borne entirely by the detainees. To spread the burden, all the airlines have to do is give each detainee a $100 bill for his trouble. If Northwest had had a policy like that on Annie Jacobsen's flight, it would have paid out $1,400 to the 14 Syrians. Assuming there were another 200 passengers on that board, they could have covered that cost with a $7 hike in ticket prices.


I am guessing that Annie Jacobsen would have been thrilled to pay a $7 surcharge for the comfort of knowing that her Syrian co-passengers had been thoroughly vetted before takeoff. The Syrian musicians, in turn, would have picked up a hundred bucks apiece in exchange for, oh, 15 minutes or so of answering questions. [Full article]

There are certainly some nice aspects to this idea. It recompenses those who have to go through an extra search, and it charges those who are the main beneficiaries of increased security - the fellow passengers. It allows those who are more (or less) security conscious to choose flights with higher (or zero) premiums to compensate for more intensive/frequent (or nonexistent) searches.

There are some downsides, however. Based on 9/11, one might argue that much of the cost of a hijacked plane is borne by those in the building it crashes into (and the entire nation's economy). This is an externality, hence the onboard passengers won't take it into account when deciding what level of security to purchase. However, this can be dealt with by having the government subsidize a portion of the insurance proportional to this external risk.

A more significant problem is that when you make it more attractive to be searched, you encourage people to trigger false positives in the screening algorithm. A possible solution would be to cap the number of times someone could qualify for the compensation. After a certain number of positives, you figure they're either gaming the system, or they really are a suspicious character. Given the shoddy state of current screening, however, its more likely they just have the same name as someone the government heard might have once considered being a terrorist.

Still, its a neat idea, and it would certainly be good to better connect the costs and benefits of searches. Any suggestions?

Share this

Brian, "The proper locus of

Brian,

"The proper locus of liability is the airline itself, for damage done to a building based on one of its jetliners being hijacked. The airline would have to show that it wasn’t negligent in its security arrangements to avoid a civil decision against it."

Suppose a guy rents a truck and uses it to bring down the building. Should the truck rental company likewise be held responsible for damages?

As I point out in my own

As I point out in my own blog post on this article: Besides the fact that we already pay taxes and security surcharges up the wazoo when we fly, Landsburg's basic economic premise is flawed and unsupportable. There is every reason in the world why "the burden has to be borne entirely by the detainees." They're the ones imposing the cost upon themselves in the first place!
:dunce:

P.S. Do you guys know that your trackback links aren't working? Wanted to trackback to a couple different posts recently, but the link points to the permalink rather than the trackback URL.
:neutral:

I say that all airlines

I say that all airlines should implement this system immediately - I've got bills to pay... :twisted:

There are some downsides,

There are some downsides, however. Based on 9/11, one might argue that much of the cost of a hijacked plane is borne by those in the building it crashes into (and the entire nation’s economy). This is an externality, hence the onboard passengers won’t take it into account when deciding what level of security to purchase. However, this can be dealt with by having the government subsidize a portion of the insurance proportional to this external risk.

The proper locus of liability is the airline itself, for damage done to a building based on one of its jetliners being hijacked. The airline would have to show that it wasn't negligent in its security arrangements to avoid a civil decision against it. If the terrorists managed to beat security in a way not easily foreseen by the airlines, then the loss is similar to that of any other natural disaster and the insurance companies for the building owners must pay out (that's their job; taking the hit when bad stuff happens). Airliners could/would also get insurance against terror damage liability, or else some financial wizard would find a risk-dispersing financial vehicle for airlines.

In any case, none of this requires any sort of government subsidy for security, which would be problematic for a variety of reasons:

(1) It is impossible for the government to know or even quantify what the amount of "external" risk is to building owners and the people working in/visiting them, thus the whole process and the amount of subsidy determined will be both arbitrary and politicized (regulatory capture, anyone?).

(2) A subsidy program will do what subsidy programs usually do- shift costs within the firm and yield no net increase in security spending, or at best lead to spendthrift on the part of airlines, who will get the money anwyay and thus have no incentives to economize. 'Playing market' by trying to engineer artificial, statutory, incentives will just lead to cheating, shirking, and subverting.

Oh, and if the feds provide

Oh, and if the feds provide subsidy support for the airlines, the airlines will demand that accepting such support be recognized as a "safe harbor" immunity from prosecution for criminal negligence or civil liability, and they'll get it, too, from friendly legislators.

Yes, I've read the article,

Yes, I've read the article, the THREE follow-up articles, the odd internet blog pieces claiming to have tracked down the musicians to their 'gig in the desert'[odd that when white musicians have a gig in Las Vegas it's not referred to in that manner]AND the odd internet pieces claiming to have not only tracked down the musicians, but also to have translated the music from Arabic to English and claim they are actually songs supporting terrorism! :end:

I know a much simpler way for the Annie Jacobsens of the world to deal with such 'issues' -- get a Xanax from her doctor for pre-flight anxiety OR a REALLY, REALLY stiff drink at the airport bar!

-or

we could call for an PWA ban during flights? [Pissing-While-Arab]

Also, Patri, if you've not yet read the article by the Air Marshall who was on board this flight -- let me know. I've got it linked on my blog, and I'll post it here for you to read if you like.

~Michi

Sean - as I recall, around

Sean - as I recall, around 5,000 people died in buildings, and around 500 in planes. So the cost in human life is greatly biased towards those in buildings, not those in planes (again, if we extrapolate from this one example which I think is very atypical).

I was suggesting the subsidy of that portion of insurance only as a simple way of dealing with the issue in the standard econ worldview. As others have mentioned, its deeply problematic. As you say, a better way would be for airlines to be liable for those costs, as they would be estimated by insurers, or paid after the fact, and thus much more accurate than whatever the govt. would invent.

JTK - All that matters about

JTK - All that matters about this "fairness" thing is that consumers want it. Therefore if we can make airlines supply more of it, and doing so imposes less extra cost than the value of it, its a win. Just like "decor", or "pleasantness", or "speed".

I think the McDonald's pricing scheme is unfair because it inequally distributes outcomes over a priori equal individuals. The same is true of a lottery, or of a 1/10 free burger. It is not true when the individuals are different (as in kid/senior discounts, insurance, etc.)

When I say something is unfair, I am not making any kind of grand moral judgement. Fairness is one of many qualities of a system. Given that I don't try to impose my standards of fairness on anyone, why do you care what they are?

"I think the McDonald’s

"I think the McDonald’s pricing scheme is unfair because it unequally distributes outcomes over a priori equal individuals. The same is true of a lottery, or of a 1/10 free burger."

You really think a lottery is unfair? The consensus standard you invoked earlier now fails because most people don't think lotteries are unfair, and they don't think it's unfair to occasionally give out the free burger. They certainly don't recoil from these practices.

"It is not true when the individuals are different (as in kid/senior discounts, insurance, etc."

Or with Middle Eastern men who fit the terrorist profile? People are obviously not a priori equally likely to be in league with Al Qaeda, as Landsburg himself points out. So why do you think it's unfair again?

JTK, Gambling is illegal in

JTK,

Gambling is illegal in most states. As far as I know, only a minority have state lotteries, and even these are controversial.

In answer to your last question, the unfairness argument against racial profiling is that people don't get to choose which race they are born into. Not that I think this is a convincing argument against racial profiling under certain circumstances.

"Gambling is illegal in most

"Gambling is illegal in most states. As far as I know, only a minority have state lotteries, and even these are controversial."

Because lotteries are unfair?

Is it unfair to run a promotion where every 10th meal ordered is free? Is it unfair to suddenly run a sale for One Day Only, when some people may be away on vacation? Is it unfair to put a different prize in every box of Cracker Jack, thus insuring unequal outcomes for purchasers?

It's silly to argue that fairness means uniformity of outcome, in the absence of force and fraud all voluntary transactions are fair.

"In answer to your last question, the unfairness argument against racial profiling is that people donâ??t get to choose which race they are born into."

And I've already addressed this. Is it unfair to charge women less for life insurance since men don't get to choose which gender they're born into?

Is it unfair to charge me more to see a movie today than you charge a child or a senior citizen? After all, none of us got to choose when we would be born.

Is it unfair for a chain store to charge more for product in the town where the hurricane hit, when none of that town's people got to choose where the storm would strike?

It's perfectly fair for people to offer their goods and services on whatever terms they choose.

Uh. . . guys? Are posts

Uh. . . guys? Are posts being moderated before posting now or something? Sorry for the 2 similar posts, but I thought the original had vanished.

I give up.

~Michi

KipEsquire nailed it. What's

KipEsquire nailed it. What's unfair about the owners putting any restrictions they want to on the use of their planes?

The only unfairness here is due to government imposing conditions on the use of private property. Spreading out that unfairness doesn't do a thing to diminish it.

JTK- No, and that is why I

JTK-

No, and that is why I put in the caveat afterwards. Prior to 9/11, it was not foreseen that a plane would be hijacked and deliberately flown into a building. Thus what could the airlines have done prior? They maintained security that was considered reasonable (setting aside whether conventional wisdom was in fact reasonable security all things considered), and something new and terrible happened.

The onus should have been on insurance companies.

But in the general sense, and post 9/11, the security risk should be borne ultimately by the airlines who can disperse/deal with that risk however they please (via insurance, markets, charging people more to make up for it, etc). General liability risk is always a firm's concern, not the government's.

WWB- Yes, posts are

WWB-

Yes, posts are sometimes in moderation before being posted. WordPress seems to be either slow in posting comments or erratic in which ones it holds for moderation. The system is supposed to moderate/hold comments that have a lot of links in them or else have some keywords that comment spammers use.

I'm not sure why yours are not going through.

Also, though, our host is erratic and thus service can be on the blink for a few minutes at any given time (or even a few seconds). I counsel patience at least for another month or so.

Brian, I don't follow.

Brian,

I don't follow. Suppose you own a plane and a truck. Terrorists steal both. They use the plane to destroy a building a la 9/11, they use the truck to destroy a building a la OKC. Assuming your security wasn't very strong are you liable for damages in one case, both, or neither?

If a terrorist steals your car from your driveway and car bombs an apartment building should you be held liable for that? Should car owners be paying insurance for terrorist uses their cars may be put to?

Spreading Misery

Spreading Misery Fairly
Stephen Landsburg has noticed that costs are being imposed on Middle Eastern men boarding planes in the U.S. and he thinks it would be more fair if some of those

Patri, If one airline

Patri,

If one airline spreads the costs of searching Middle Easterners to all passengers and another airline doesn't spread the costs but leaves them squarely on the individuals it searches, why should I prefer the first airline?

If the two firms compete in a free market I'd expect to see Middle Easterners strongly tend to patronize the first airline, and then Annie Jacobsens could patronize the first. There would be fewer individuals fitting the profile on her plane, those that did fit the profile would have been searched, and she doesn't have to pay extra to defray the cost of the searches.

I don't see how Landsburg's proposal is a winner in a free market. It will soon become apparent to most passengers that it's cheaper to fly on the airline that doesn't spread the costs.

Typo above: I'd expect Annie

Typo above: I'd expect Annie Jacobsens to patronize the second airline.

Michi - Yes, I've read the

Michi - Yes, I've read the Air Marshall's report. When I said "frightful tale", what I meant was that it was full of Jacobsen's fright :wink:.

Kip - it is not true that the detainees are imposing costs on themselves. The vast majority of them have done nothing wrong, they've just been singled out because the search system is not very accurate. Perhaps you've never had to undergo extra searches at the airport, but its happened to me a few times.

Brian - I totally agree with you about the problems with subsidies. When playing with these ideas, I was considering the problem in isolation, assuming that we just have to find the right local set of incentives, and inputs from the rest of the world would be as they should.

Professor Landsburg

Professor Landsburg replies:

Thanks for your very thoughtful public comments.

I think we'd want to compensate only those who were targeted for characteristics that are hard to fake (e.g. middle eastern appearance). Those who are targeted for dressing funny or talking to themselves will go uncompensated, which is unfortunate...Of course, your idea of a cap could work too....

KipEsquire nailed it.

KipEsquire nailed it. What’s unfair about the owners putting any restrictions they want to on the use of their planes?

It sounds like you are saying that non-coercive actions can never be unfair. That may be how you think, but I'm pretty sure that almost the entire world disagrees with you.

If the rules at McDonalds were that every customer had a 1 in 10 chance of having the price of their meal doubled, I think most people would say that was unfair, and buy less burgers there as a result. From the point of view of my subjective morality, I would agree. I think that pricing scheme is unfair, although I certainly don't think its wrong or immoral.

I'm not using fairness as some kind of moral judgement. Its a statement about whether results are distributed evenly or randomly. Its one of many things that people tend to value, and so use as a criteria in judging things. Suggesting ways of making plane travel more fair is like suggesting ways to make it more pleasant.

JTK - its not clear to me

JTK - its not clear to me that its a winner on the free market either, hence why I raised doubts in my post, and asked for better suggestions. I agree with you about the adverse selection effect. If those are the only two options, I agree with your analysis of the results.

However, I think there are other options. We should add an airline that doesn't search Middle Easterners and has slightly lower fares. That's the one I'd patronize, and the Middle Easterners might as well. Again, that leaves Annie with a safe airline, without needing Landsburg's scheme.

Or we might have an airline where Annie can pay extra to have more searches. That might discourage Arabs from that airline without Annie ever needing to pay for it, which is an interesting result.

"If the rules at McDonalds

"If the rules at McDonalds were that every customer had a 1 in 10 chance of having the price of their meal doubled, I think most people would say that was unfair, and buy less burgers there as a result."

Would it be unfair if every customer had a 1 in 10 chance of getting his meal free? Are lotteries unfair? Is it unfair for movie theaters to give discounts to kids and seniors? Is it unfair for life insurance companies to charge women less than men when their sex is determined at random?

A lot of people would say it's unfair that you get to sit in a nice seat in the front of the plane just because you can pay more. Is that unfair because they say so? Many people would say it's unfair that the children of the rich get better eduactions than the children of the poor, is that unfair?

Based on 9/11, one might

Based on 9/11, one might argue that much of the cost of a hijacked plane is borne by those in the building it crashes into (and the entire nation’s economy). This is an externality, hence the onboard passengers won’t take it into account when deciding what level of security to purchase.

Every person on the planes that crashed into buildings is exactly as dead as the deadest person who was in any of those buildings. On average, they are much deader than the overall population of those buildings at the time of impact.

As for the supposed externalities, what makes you think the individual passengers need to cover that at all? That's up to the airlines (making sure their planes don't get hijacked), who are in turn customers of the airports, and the building owners. At no point does any need for government subsidies enter into the picture.

Kennedy, I never said I

Kennedy,

I never said I believed lotteries are unfair. My point was to argue against your claim that the consensus believes lotteries are fair. Some do, some don't, and based on government policies, there is no clear consensus.

I share your conception of fairness. But it is not clear that most people agree.

And Iâ??ve already addressed this. Is it unfair to charge women less for life insurance since men donâ??t get to choose which gender theyâ??re born into?

Based on government regulation of the insurance industry, most people (at least most voters or most politicians) do in fact believe that this kind of profiling is unfair. Insurance companies are prohibited from classifying people along certain characteristics. And many private businesses are prohibited from discriminating on the basis of race, gender, etc.

I personally believe arbitrary discrimination based on bigotry is unfair, but should be legal. But I am in the minority, as are you.

Micha, "I personally believe

Micha,

"I personally believe arbitrary discrimination based on bigotry is unfair..."

In fact you don't believe any such thing. As usual a couple of questions would quickly demonstrate that when you say "I personally believe X", there is no X that makes your assertion coherent. What you really mean is "I personally don't like bigotry", which is not a belief at all but simply a fact. You don't believe bigotry is unfair because you don't believe in any standard by which it could be unfair.

How is your aversion to racial, ethnic, or other bigotry any less arbitrary than that bigotry itself? Aren't all preferences and ends arbitrary?

Do you think arbitrary discrimination based on bigotry against blacks and gays harms blacks and gays?

Micha, And what the heck do

Micha,

And what the heck do you mean whan you write "I share your conception of fairness"?

The last words I wrote before you offered that were: "Itâ??s perfectly fair for people to offer their goods and services on whatever terms they choose."

You go on to say "I personally believe arbitrary discrimination based on bigotry is unfair..."

How is that sharing my conception of fairness?