Tuesday, May 17, 2016

Good Regulation (Standards) vs Bad (Dictates)


U.S. Sen. Charles Schumer wants to require the Federal Aviation Administration to establish seat-size standards for commercial airlines, which he says now force passengers to sit on planes "like sardines."
As a tall male, I am definitely sympathetic to the motivation behind Schumer's comments. But it isn't the government's place to mandate seat size/spacing--unless there is a compelling safety concern. That level of descriptiveness is excessive (bad) regulation.
Where I am more sympathetic is standards that compensate for information asymmetry. Companies will generally exploit their superior command of details, versus their customers, to hide, mis-direct and deceive. For instance, banks will vigorously trumpet their interest rate, but will never compete on overdraft charges.
In airlines, the accepted wisdom is that price is the only thing that matters. There is a lot of truth in that, but even if a consumer wanted to evaluate an airline on seat spacing, they lack an easy way to do it.
This is where good regulation can potentially come into play. If some regulatory body--could be the government, but doesn't have to be--establishes standards for seat sizes, then companies will feel pressure to meet those standards. They may even decide to compete on that basis, and advertise "exceeds federal seat-spacing standards by 20%". And just to be clear--they will be free to space their seats below standard--but they have to clearly identify that they are providing "sub-standard" services.


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