Child Safety Seats on Commercial Airliners: A Demonstration of Cross-Price Elasticities

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Economic Instruction
In this section, the Journal of Economic Education publishes articles, notes, and communications describing innovations in pedagogy, hardware, materials, and methods for treating traditional subject matter. Issues involving the way economics is taught are emphasized. PAUL GRIMES, Section Editor

Child Safety Seats on Commercial Airliners: A Demonstration of Cross-Price Elasticities Shane Sanders, Dennis L. Weisman, and Dong Li

Abstract: The cross-price elasticity concept can be difficult for microeconomics students to grasp. The authors provide a real-life application of cross-price elasticities in policymaking. After a debate that spanned more than a decade and included input from safety engineers, medical personnel, politicians, and economists, the Federal Aviation Administration (FAA) recently announced that it would not mandate the use of child safety seats on commercial airliners. The FAA’s analysis revealed that if families were forced to purchase additional airline tickets, they might opt to drive rather than fly, and driving represents a far more dangerous mode of travel. Given the relatively high cross-price elasticity between automobile travel and air travel, the FAA concluded that the mandatory child safety seat policy failed to pass the cost-benefit test—the policy would lead to a net increase in the number of fatalities. The authors review the FAA’s decision-making process and highlight the role of economic analysis in developing public policy. Keywords: cost-benefit analysis, cross-price elasticities, public policy JEL codes: A20, A22

Shane Sanders is an assistant professor of economics at Nicholls State University (ssander9@ aum.edu), Dennis L. Weisman is a professor of economics at Kansas State University, and Dong Li is an associate professor of economics at Kansas State University. The authors are grateful to William Becker, Michael Watts, Nancy Claussen, Jason Coleman, Thomas Sowell, Bhavneet Walia, staff members at the Federal Aviation Administration, and three anonymous referees for constructive suggestions. Copyright © 2008 Heldref Publications

Spring 2008

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The concept of a cross-price elasticity is important in microeconomics, and our collective experience is that students frequently have difficulty understanding and applying this concept. In addition, students tend to treat cross-price elasticities as merely a theoretical concept that is of limited practical value. We examine the child safety seat (CSS) mandate proposal on commercial airplanes as a real-life example that illustrates the use of cross-price elasticities in policymaking. A CSS mandate would raise the price of flying for passengers with children because seats would then have to be purchased separately for infants less than two years of age. This increase in price reduces the quantity of air travel demanded and increases the quantity of automobile travel, a riskier substitute for air travel. If the substitution effect—that is, the cross-price elasticity—is sufficiently large, mandatory CSS may increase the number of fatalities. Through this example, we demonstrate that the cross-price elasticity concept is not only an important one in microeconomics but also an important tool for policy analysis. On August 25, 2005, the FAA announced that it would not mandate the use of CSSs on airplanes. The FAA (2005) analyses indicated that, if families were forced to purchase additional airline tickets, they might opt to drive rather than fly, and driving represents a far more dangerous mode of travel. In other words, given the effective cross-price elasticities, the increase in the price of airfare for families would cause them to substitute relatively risky automobile travel for relatively safe air travel. Fatalities per 100 million passenger miles traveled were approximately 0.03 for air travel and 0.97 for highway travel during the period from 1995 through 20031 (Tables 1 and 2; see also Figure 1). It is...
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