One of the most visible economic effects of the COVID-19 spread is the decrease in airline customers. Alec Stapp alerted me to the recent outrage over “ghost flights,” where airlines fly nearly empty planes to maintain their “slots.”

Read the full piece here.

The pandemic is serious. COVID-19 will overwhelm our hospitals. It might break our entire healthcare system. To keep the number of deaths in the low hundreds of thousands, a study from Imperial College London finds, we will have to shutter much of our economy for months. Small wonder the markets have lost a third of their value in a relentless three-week plunge. Grievous and cruel will be the struggle to come.

Read the full piece here.

The concept of a “good” or “efficient” cartel is generally regarded by competition authorities as an oxymoron. A cartel is seen as the worst type of antitrust violation and one that warrants zero tolerance. Agreements between competitors to raise prices and share the market are assumed unambiguously to reduce economic welfare. As such, even if these agreements are ineffective, the law should come down hard on attempts to rig prices. In this post, I argue that this view goes too far and that even ‘hard core’ cartels that lower output and increase prices can be efficient, and pro-competitive. I discuss three examples of where hard core cartels may be efficient.

Read the full piece here.

Complexity need not follow size. A star is huge but mostly homogenous. “It’s core is so hot,” explains Martin Rees, “that no chemicals can exist (complex molecules get torn apart); it is basically an amorphous gas of atomic nuclei and electrons.”

Nor does complexity always arise from remoteness of space or time. Celestial gyrations can be readily grasped. Thales of Miletus probably predicted a solar eclipse. Newton certainly could have done so. And we’re confident that in 4.5 billion years the Andromeda galaxy will collide with our own.

Read the full piece here.

Abstract

We develop a model of inter-temporal and intra-temporal price discrimination by monopoly airlines to study the ability of different discriminatory pricing mechanisms to increase e?iciency and the associated distributional implications. To estimate the model, we use unique data from international airline markets with flight-level variation in prices across time, cabins, and markets and information on passengers’ reasons for travel and time of purchase. The current pricing practice yields approximately 77% of the first-best welfare. The source of this ine?iciency arises primarily from private information about passenger valuations, not dynamic uncertainty about demand. We also find that if airlines could discriminate between business and leisure passengers, total welfare would improve at the expense of business passenger surplus. Also, replacing the current pricing that involves screening passengers across cabin classes with offering a single cabin class has minimal effect on total welfare.

Summary

“On behalf of the R Street Institute, the Competitive Enterprise Institute, TechFreedom, and the International Center for Law & Economics, we respectfully submit these comments in response to the California Department of Motor Vehicles’ proposed Driverless Testing and Deployment Regulations released on March 10, 2017. We believe the proposed regulations better serve the people of California—not only in terms of safety, but in terms of consumer welfare more generally. We are particularly cognizant of the DMV’s demonstrable commitment to an iterative approach to this rulemaking. On that basis and in that spirit, we believe that further revisions are necessary.”

Last week the International Center for Law & Economics, joined by TechFreedom, filed comments with the Federal Aviation Administration (FAA) in its Operation and Certification of Small Unmanned Aircraft Systems (“UAS” — i.e, drones) proceeding to establish rules for the operation of small drones in the National Airspace System.

We believe that the FAA has failed to appropriately weigh the costs and benefits, as well as the First Amendment implications, of its proposed rules.

The FAA’s proposed drones rules fail to meet (or even undertake) adequate cost/benefit analysis

FAA regulations are subject to Executive Order 12866, which, among other things, requires that agencies:

• “consider incentives for innovation,”
• “propose or adopt a regulation only upon a reasoned determination that the benefits of the intended regulation justify its costs”;
• “base [their] decisions on the best reasonably obtainable scientific, technical, economic, and other information”; and
• “tailor [their} regulations to impose the least burden on society,”

The FAA’s proposed drone rules fail to meet these requirements.

An important, and fundamental, problem is that the proposed rules often seem to import “scientific, technical, economic, and other information” regarding traditional manned aircraft, rather than such knowledge specifically applicable to drones and their uses — what FTC Commissioner Maureen Ohlhausen has dubbed “The Procrustean Problem with Prescriptive Regulation.”

As such, not only do the rules often not make sense as a practical matter, they also seek to simply adapt existing standards, rules and understandings promulgated for manned aircraft to regulate drones — insufficiently tailoring the rules to “impose the least burden on society.”

In some cases the rules would effectively ban obviously valuable uses outright, disregarding the rules’ effect on innovation (to say nothing of their effect on current uses of drones) without adequately defending such prohibitions as necessary to protect public safety.

Importantly, the proposed rules would effectively prohibit the use of commercial drones for long-distance services (like package delivery and scouting large agricultural plots) and for uses in populated areas — undermining what may well be drones’ most economically valuable uses.

As our comments note:

By prohibiting UAS operation over people who are not directly involved in the drone’s operation, the rules dramatically limit the geographic scope in which UAS may operate, essentially limiting commercial drone operations to unpopulated or extremely sparsely populated areas. While that may be sufficient for important agricultural and forestry uses, for example, it effectively precludes all possible uses in more urban areas, including journalism, broadcasting, surveying, package delivery and the like. Even in nonurban areas, such a restriction imposes potentially insurmountable costs.

Mandating that operators not fly over other individuals not involved in the UAS operation is, in fact, the nail in the coffin of drone deliveries, an industry that is likely to offer a significant fraction of this technology’s potential economic benefit. Imposing such a blanket ban thus improperly ignores the important “incentives for innovation” suggested by Executive Order 12866 without apparent corresponding benefit.

The FAA’s proposed drone rules fail under First Amendment scrutiny

The FAA’s failure to tailor the rules according to an appropriate analysis of their costs and benefits also causes them to violate the First Amendment. Without proper tailoring based on the unique technological characteristics of drones and a careful assessment of their likely uses, the rules are considerably more broad than the Supreme Court’s “time, place and manner” standard would allow.

Several of the rules constitute a de facto ban on most — indeed, nearly all — of the potential uses of drones that most clearly involve the collection of information and/or the expression of speech protected by the First Amendment. As we note in our comments:

While the FAA’s proposed rules appear to be content-neutral, and will thus avoid the most-exacting Constitutional scrutiny, the FAA will nevertheless have a difficult time demonstrating that some of them are narrowly drawn and adequately tailored time, place, and manner restrictions.

Indeed, many of the rules likely amount to a prior restraint on protected commercial and non-commercial activity, both for obvious existing applications like news gathering and for currently unanticipated future uses.

Our friends Eli Dourado, Adam Thierer and Ryan Hagemann at Mercatus also filed comments in the proceeding, raising similar and analogous concerns:

As far as possible, we advocate an environment of “permissionless innovation” to reap the greatest benefit from our airspace. The FAA’s rules do not foster this environment. In addition, we believe the FAA has fallen short of its obligations under Executive Order 12866 to provide thorough benefit-cost analysis.

The full Mercatus comments, available here, are also recommended reading.

Read the full ICLE/TechFreedom comments here.

Filed under: international center for law & economics, markets, regulation, technology Tagged: Drones, FAA, Federal Aviation Administration, First Amendment, UAS

Summary

“We believe the Federal Aviation Administration (FAA) has failed to appropriately weigh the costs and benefits, as well as the First Amendment implications, of its proposed rules for the Operation and Certification of Small Unmanned Aircraft Systems (UAS). The proposed rules would unduly burden both current and future economically and societally valuable uses of drones, in some cases effectively banning obviously valuable uses outright. Among other things, the proposed rules would effectively prohibit the use of commercial drones in populated areas, undermining what may well be drones’ most economically valuable uses.”

The proposed rules would unduly burden both current and future economically and societally valuable uses of drones, in some cases effectively banning obviously valuable uses outright. Among other things, the proposed rules would effectively prohibit the use of commercial drones in populated areas, undermining what may well be drones’ most economically valuable uses. Absent justification that such overbroad and costly rules are required to ensure the public safety, they are more restrictive than necessary to satisfy the FAA’s core statutory responsibility: to protect the safety of the general public.

Moreover, these rules constitute a de facto ban on most — indeed, nearly all — of the potential uses of drones that most clearly involve the collection of information and/or the expression of speech protected by the First Amendment. Indeed, many of the rules likely amount to a prior restraint on protected commercial and non-commercial activity, both for obvious existing applications like newsgathering and for currently unanticipated future uses. The same failure to tailor the rules according to an appropriate analysis of their costs and benefits also likely causes them to violate the First Amendment. Without proper tailoring based on the unique technological characteristics of drones and a careful assessment of their likely uses, the rules are considerably more broad than the Supreme Court’s “time, place and manner” standard would allow.

Finally, the FAA’s stated interest in protecting safety may be viewed by a court as being, at least in part, a pretext for attempting to regulate the use of UAS to collect information in order to address “privacy” concerns about uses many would find unsettling. We do not dismiss such concerns, but we believe there are better – and more legally supportable – ways to handle them than the effective ban in populated areas imposed by the proposed rules. If every new technology required the consent of everyone who might hypothetically be harmed by it, however small the risk, technological progress would come to a standstill, especially the progress of technologies that allow us to better observe, understand and communicate about the world…”