David R. Henderson  

Murphy on Airline Security

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Are you tired of having naked pictures taken of you and/or being groped at the airport in this "land of the free," but still worried about a terrorist hijacking of the airplane you're on? Is there a way out of this dismal tradeoff? Actually, yes. Bob Murphy tells you how to have more security, more freedom, and more privacy in this month's Feature Article, "Ensuring--and Insuring--Airline Security." Here's one excerpt:

Rather than establishing a giant bureaucracy with the authority to impose a one-size-fits-all protocol for security on all airports, the government could merely require that airlines pay the full costs of another 9/11-type disaster. The government wouldn't have to oversee the methods that airlines implement to weed out terrorist threats. On the contrary, the government would simply verify that the airlines had the ability to pay huge damages in the wake of an unlikely but catastrophic security breach.


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COMMENTS (16 to date)
Philo writes:

"[T]he government would simply verify that the airlines had the ability to pay huge damages in the wake of an unlikely but catastrophic security breach." Fortunately most of our freedoms are not curtailed by the government's requiring us to carry insurance to pay for all the unlikely catastrophes that *might possibly* arise from our activities. (This is not to deny that Murphy's scheme is vastly preferable to what we have now.)

volatility bounded writes:

This proposal is silly. The cheap, safe alternative to the 9-11 security measures (except for reinforcing cockpit doors) is simple: announce to passengers that they are responsible for killing or otherwise incapacitating anyone that tries to hijack the plain, and tell the pilot to land the plane ASAP if there's trouble, or the air force will shoot the plane out of the sky -- in all cases, no exceptions.

If these are the rules, there won't be many hijackings.

rapscallion writes:

Wow. Lots of problems with this:

i) I doubt the pure free market policy would be a stable equilibrium. Airline and insurance companies would bicker endlessly and lobby the government for regulations regarding the insurance premiums, just like doctors lobby for mal practice settlement caps and lower required insurance amounts.

ii) Since the total costs from terrorism will likely dwarf the direct costs (e.g. insomuch as 9-11 caused the Iraq and Afghanistan wars, its true total cost was probably in the trillions), safety is likely to be undersupplied.

iii) Another reason to think insurance will be undersupplied: principal agent problems. Corporate big wigs—the one’s with decision-making power—don’t in general insure against disaster as much as they should because their pensions and bonuses are usually secure anyway. You can probably think of some recent examples of this.

iv) There’s probably only one way to do cost-effective security screening, and it’s illegal: ethnic profiling.

I do, however, think that there’s an easy, cheap way to ensure that airlines don’t underprovide security: mandatory summary execution of executives if their planes are used in a terrorist incident. Getting that bill passed might be tough, though.

RZ writes:

I think the airlines were legally culpable before 9/11, in just the manner suggested here.
They got bailed out thanks to Tom Daschle's wife. But they were not expecting the bailout before the fact, so their behavior 10 years ago should give a pretty good idea how well this idea would work.

gabriel rossman writes:

this seems to be a textbook case of mistaking uncertainty for risk, both in terms of the conditional probability of the event itself under various security measures and the estimate of its repercussions. there's a big difference between an insurance company knowing how much more to charge smokers for a life insurance or health insurance policy as compared to pricing in the use of porn machines in airport screening. would the bond taken out by the industry just have to cover the wrongful death suits for the people directly killed by terrorists or likely second order effects, such as a trillion dollar war in whatever godforsaken place the terrorists trained in? if we take a fairly expansive understanding of damages, how in the wake of AIG could we trust that the insurers could actually honor such cataclysmically large claims?

all that being said, i can imagine lots of ways that the demands insurance companies would make on airports would be more rational than those made by the TSA.

Dan Carroll writes:

Airport security is more about convincing the public to fly than about preventing disasters. The public (or at least a sizeable minority) has an irrational fear of flying, and therefore will curtail flying if they perceive a safety problem, however minor. The TSA is the industry's and the government's response.

An analogous industry is that of granting USDA approval on beef.

Unfortunately, in the case of the TSA, the response escalates each time there is a breach. And there will be more breaches in the future.

Silas Barta writes:

@rapscallion: Since the total costs from terrorism will likely dwarf the direct costs (e.g. insomuch as 9-11 caused the Iraq and Afghanistan wars, its true total cost was probably in the trillions), safety is likely to be undersupplied.

Er, I'm pretty sure that the invasion and occupation of two countries on the other side of the globe isn't, strictly speaking, a "cost" of a hijacking.

Mike Hammock writes:

I made a similar argument in November.

David R. Henderson writes:

@Mike Hammock,
Thanks, Mike. I guess great minds think alike.
Best,
David

abcde writes:

"Fortunately most of our freedoms are not curtailed by the government's requiring us to carry insurance to pay for all the unlikely catastrophes that *might possibly* arise from our activities."

Seriously, doesn't it make sense for activities with large damage potential in case of accidents to require such an insurance to protect the freedom of the potentially harmed people?

Philo, you only seem to regard the freedom of one group of people and neglect the freedom of life and property of the potentially harmed people.

Nick writes:

the government would simply verify that the airlines had the ability to pay huge damages in the wake of an unlikely but catastrophic security breach.

How can they know the value of the damages beforehand? Is the author really asserting that any conceivable situation can be assessed? or are the airlines on the hook for virtually unlimited liability? in that case is he saying we shouldn't have air travel?

Elvin writes:

Why even have the TSA or a government insurance regulation? My guess is that the airlines and airports would have a system similar to the TSA screening, only better run and perhaps less intrusive. After all, they would be out of business if they couldn't convince the public that flying was safe. At the very least, the insurance companies insuring the airplanes would insist on cost-effective measures.

My only worry would be the liability for non-travelers, i.e. the victims in the Twin Towers and the Pentagon. I guess this would be a legitimate area of law and government assignment of property rights/liability.

David R. Henderson writes:

Elvin writes,
My only worry would be the liability for non-travelers, i.e. the victims in the Twin Towers and the Pentagon. I guess this would be a legitimate area of law and government assignment of property rights/liability.
That was the point of Bob's article.

Philo writes:

Abcde writes: "Seriously, doesn't it make sense for activities with large damage potential in case of accidents to require such an insurance to protect the freedom of the potentially harmed people?" But "large damage potential" needs to be spelled out a bit: *how probable* does the damage (to other people who have not consented to running the risk) have to be to justify the government's requiring the agent to carry insurance that would cover the full cost of the accident? Some demands for insurance coverage seem reasonable, others not; abcde does not specify where the line should be drawn. Almost any activity might conceivably produce disastrous consequences, but if the probability is low enough people should nevertheless be free to engage in that activity.

By the way, even insurance will not necessarily "protect the freedom [or the interest] of the potentially harmed people"; some harms are fatal.

rapscallion writes:

Silas,
All the additional costs likely resulting from a terrorist attack are relevant to the policymakers deciding how much insurance to force airline companies to buy. If a crash makes it 10% more likely that we’ll wage a trillion dollar war, then we’ll want airline companies to buy at least $100 billion dollars worth of insurance. That’s the theory, anyway.

I’m not saying that forcing airline companies to buy insurance won’t be some kind of improvement, but I think it’s obvious that no matter who is in charge of security or how they are paid, the only way to make airline travel significantly safer is through ethnic profiling and discrimination. Everyone who proposes some new incentive scheme or restructuring without acknowledging this is not being serious. Note that Bob Murphy’s article is careful to elide the issue in the section on discrimination.

Silas Barta writes:

@rapscallion:

All the additional costs likely resulting from a terrorist attack are relevant to the policymakers deciding how much insurance to force airline companies to buy. If a crash makes it 10% more likely that we’ll wage a trillion dollar war, then we’ll want airline companies to buy at least $100 billion dollars worth of insurance.

It's still the policymaker's fault they decided to handle the situation by waging a war. My point was that insurance companies (and airlines) are not morally responsible for these costs, so you're only making the insurance costs seem high by assuming they must bear costs they're not responsible for -- in other words, that costs should be *dis*proportionately shifted back to them.

Note that Bob Murphy’s article is careful to elide the issue in the section on discrimination.

Not really; he just says that if it really works, the incentives would be in place to do it, and if not, it won't; and that a market process like this is the only way to get a good answer to that question.

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