The economics of airline safety and security
An analysis of the White House Commission's recommendations

Introduction

After seven months of investigation and the recovery of 95 percent of the wreckage, we still do not know the cause of the tragic crash of TWA flight 800. The Administration quickly reacted to the incident by immediately implementing several heightened security measures and creating a White House Commission on Aviation Safety and Security. President Clinton asked the Commission to take a comprehensive look at the state of safety and security in aviation, and make recommendations for improvement. After just 45 days, the Commission offered some initial recommendations, and on February 12, the Commission issued a final report containing no less than 57 proposals aimed at improving aviation safety and security. Based on the initial recommendations alone, President Clinton assures us that "not only will the American people feel safer, they will be safer."1 But is this really true? And what do we really know about likely benefits and costs of different Commission recommendations?

In my testimony, I will address some important economic impacts of the safety and security recommendations of the Commission. I will argue that the Commission fails to provide adequate data on which to make an informed economic assessment of their proposals. Many of the Commission's recommendations, such as making Federal Aviation Administration (FAA) rules performance-based, appear to be sensible. Nonetheless, several of the proposals would not pass an economist's benefit-cost test if they were implemented today. Thus, I urge the Congress to carefully assess the Commission's recommendations before committing billions of dollars of taxpayer money to different activities aimed at enhancing air safety and security. In thinking through these recommendations, I offer four general principles for your consideration.

Principles

Principle 1: There are difficult trade-offs in improving aviation safety and security. Ignoring such trade-offs can lead to undesirable policy outcomes.

The Commission's declaration that "Americans should not have to choose between enhanced security and efficient and affordable air travel," shows a disregard for the difficult trade-offs in risk reduction.2 Each measure to improve safety and security can have an impact on the direct costs to travelers, delay, convenience, civil liberties, fatalities, and taxpayer costs.

For example, using computer background checks to identify suspected terrorists could enhance security at a reasonable cost, but would also curtail individual freedoms. Requiring airlines to match each bag to a passenger on a specific flight just before that flight's departure may reduce the threat of a "drop and run" terrorist tactic, but could result in lengthy delays and inconvenience.3 Using high-tech machines to detect explosive devices could increase delays significantly and do little to enhance safety. Requiring child safety seats will secure infants during air travel, but it could lead to an increase in automobile travel and highway fatalities.

The sad truth is that aviation fatalities cannot be eliminated unless we ban air travel, and that is simply too high a price to pay. Some level of risk must therefore be deemed acceptable, and we need to confront the question of how safe is safe enough.4 This requires a careful assessment of the likely benefits and costs of the proposals.

Principle 2: Sound policy requires a thorough assessment of benefits and costs.

A thorough assessment of the benefits and costs of regulations is critical in establishing sound public policy.5 Yet in a draft of the final report, the Commission expressed the need for the FAA Administrator "to waive the benefit-cost criteria" so that costs are not the central issue in determining a rule.6 The language in the final report was softened to "costs alone should not be dispositive in deciding aviation safety and security rulemaking issues."7 While this change in language is an improvement, the Commission's message is clear: benefit-cost analysis should not play an important role in regulating air safety and security. This is simply the wrong message to send to regulators.

The Commission does not acknowledge that risk reduction in aviation comes at a substantial cost. One of the most disturbing aspects of the report is the lack of a serious discussion of the benefits and costs of the recommendations. Although the Administration was quick to note that the new recommendations would not impose federal budgetary costs because they are regulatory in nature, they do impose real costs on the airline industry, air travelers and taxpayers.8

As the Commission's report notes, air safety has vastly improved in the last four decades, but the accident rate has apparently reached a plateau. With a flat accident rate, as the volume of air travel increases, the total number of accidents is likely to increase. It is important to remember, however, that commercial aviation is still the safest mode of transportation.9 Yet, the Commission sets a goal of reducing the accident rate by 80 percent within a decade.10 Such a goal may not be achievable or may only be achievable at an enormous cost.

Last October, the President asked for and received from Congress over $400 million to implement the initial recommendations of the Commission. The actual annual cost of fully implementing those recommendations, however, would have been in the billions. Full passenger bag match alone could cost $2 billion annually. The initial cost of deploying explosive detection devices to screen checked baggage in seventy-five of the busiest airports is estimated to be about $2 billion. Moreover, the initial cost of machines aimed at screening passengers for explosives is estimated to be approximately $2 billion.11 Even more significant are the costs of delays the proposed security changes would have imposed. A rough calculation of the annual costs of this inconvenience would multiply the total number of extra hours spent waiting at the airport by the value of an air passenger's time. In a study that will be published in the Harvard Journal of Law and Public Policy, I find that if increased security measures lead to a thirty-minute delay, the cost to air travelers would be $4 billion to $10 billion annually.12

These costs are by no means insignificant. Yet none of these issues were ever addressed in the initial or the final report of the Commission.

Principle 3: Policies, at the very least, should not cause more deaths than they save.

Disregard for the benefits and costs of a policy can lead to some perverse outcomes because regulations can often lead to the opposite result than the one intended. One example of this is the proposal to require child safety seats for infants on flights. The FAA has already found that the child safety seat requirement is likely to increase the cost to air travelers while causing a net increase in fatalities. In their report to Congress, the FAA estimates that while this requirement may save the lives of 5 infants over 10 years (one every other year), it is likely to increase highway fatalities by 30 to 100 as families choose to travel by automobile rather than by plane.13 The same perverse outcome is likely from a hasty implementation of proposed security measures. Although the Commission, in its final report, shifted its position from supporting full bag matching to partial bag matching coupled with profiling, the Administration intends to eventually implement full passenger bag match.14 This policy proposal needs to be carefully considered.15 In the study forthcoming in the Harvard Journal of Law and Public Policy, I estimate that increased delays likely to result from full passenger bag matching and baggage screening by explosive detection machines would not only cost billions annually in hardware and delay, but would also result in annual increased highway fatalities of 20 to 140.16

At the very least, the FAA should not implement programs that are likely to cause more deaths than they save. Unfortunately, some of the proposed policies fall into this category.

Principle 4: The primary beneficiaries of a service should pay for the usage of that service.

Primary users of a service should pay for the benefits they enjoy. Thus, the Commission was correct in calling for user fees to fund the air traffic control program. Likewise, air travelers should pay for the improvements in safety and security.

The Commission, however, calls for federal funding for security measures, arguing that aviation security is a national security issue. 17 The Commission recommends spending $100 million annually to meet just the capital needs for improvement. Although the Commission is vague on how to finance the rest of the costs, it does consider the possibility of using an aviation user security surcharge. A security surcharge may be the most appropriate mechanism to finance security improvements. Then, the primary beneficiaries of the antiterrorist measures, air travelers, would be asked to pay the lion's share of the cost.

Only if these antiterrorist measures are really intended for other problems that benefit consumers at large should the public be asked to foot the bill. For example, enhanced screening technologies and profiling could reduce the flow of illegal drugs and contraband. If, however, the proposed increase in regulations is really targeted at other activities, it should not be ushered in under the veil of increasing security. Instead, the regulations should be evaluated on their own merits.

Conclusion

The government's reaction to the TWA crash is both predictable and problematic. The Commission has allowed the cart to go before the horse by proposing policies based more on emotion than reason. Politicians of all stripes have a strong tendency to overreact in the face of a crisis. Thus, policy proposals offered in the heat of the moment should be received with a healthy dose of skepticism. Moreover, there is an inherent political problem in asking a commission to address a particular problem when it is not given an explicit budget constraint in terms of society's resources. The natural tendency for such a commission is to select a host of options without attention to the economic burdens they will place on the average consumer. This Commission was no exception.

It is desirable to move beyond the rhetoric and examine the implications of a multibillion-dollar policy before foisting it on an unknowing and emotionally vulnerable public. Risk-free air travel is not a realistic option because the cost -- banning air travel -- is simply too high.

Since we cannot prevent all accidents or terrorist threats, we must decide on the costs we are willing to bear to get small reductions in these risks. Each step to reduce aviation fatalities has costs that can be measured in terms of direct expenditures, taxpayer costs, delay, inconvenience, civil liberties, and overall fatalities. We must recognize that while some additional measures may be worthwhile, one quickly runs out of attractive options. Policies that are likely to lead to a net increase in fatalities should be avoided.

In the case of airline terrorism, a much more sophisticated approach may not be desirable given the high cost. The Israelis have the most sophisticated security system in the world. But travelers often spend three hours in the airport getting their baggage and themselves inspected. The costs of such an extensive system would be astronomical if adopted in the U.S. because of the volume of air travel.

Air safety and security concerns are likely to increase in the future. These concerns are too important to be addressed in an ad hoc manner. Economic analysis can help frame the policy discussion in addressing both of these concerns. While it cannot replace judgement, it can be a critical aid to decision makers who are interested in separating rhetoric from effective policy.

Robert W. Hahn is a resident scholar at AEI

Notes

[1] Remarks by the President during the White House Commission on Aviation Safety and Security announcement (White House Office of the Press Secretary, 1996).

[2] White House Commission on Aviation Safety and Security (1997), p.25.

[3] The process of matching bags to passengers and passengers to bags is called full passenger bag match or full passenger bag reconciliation. This technique ensures that no flight departs with an unaccompanied bag on board.

[4] See Lave (1981).

[5] See Arrow et al. (1996).

[6] Pasztor and Nomani (1997), p. A2.

[7] White House Commission on Aviation Safety and Security (1997), p.11.

[8] Statement by Elaine Kamarck (White House Office of the Press Secretary, 1997).

[9] White House Commission on Aviation Safety and Security (1997), p.6.

[10] White House Commission on Aviation Safety and Security (1997), p.3.

[11] The cost estimates for passenger bag matching and explosive detection devices are based on figures provided in General Accounting Office reports (GAO, 1996).

[12] See Hahn (1996) for preliminary results.

[13] FAA (1995), pp. 6-4, 6-6.

[14] Statement by Elaine Kamarck (White House Office of the Press Secretary, 1997).

[15] Even the Israelis, who have the most sophisticated security system in the world, do not use full passenger bag match. They rely on profiling to limit the examination of bags (Swierenga, 1996).

[16] See Hahn (1996) for preliminary results.

[17] White House Commission on Aviation Safety and Security (1997), p. 11.

Refrences

Arrow, Kenneth J., Maureen L. Cropper, George C. Eads, Robert W. Hahn, Lester B. Lave, Roger G. Noll, Paul R. Portney, Milton Russell, Richard Schmalensee, V. Kerry Smith and Robert N. Stavins (1996), Benefit-Cost Analysis in Environmental, Health, and Safety Regulation: A Statement of Principles, AEI Press, Washington, D.C.

Federal Aviation Administration (1995), Report to Congress: Child Restraint Systems, Report of the Secretary of Transportation to the United States Congress, pursuant of Section 522 of the Federal Aviation Administration Authorization Act of 1994, Washington, D.C., May.

General Accounting Office (1996), Aviation Security: Immediate Action Needed to Improve Security, Testimony before the Committee on Commerce, Science, and Transportation, U.S. Senate, GAO/T-RCED/NSIAD-96-237, August 1.

Hahn, Robert W. (1996), "An Assessment of Antiterrorist Policy," Carnegie Mellon University Working Paper 96-45, November.

Lave, Lester B. (1981), The Strategy of Social Regulation, Brookings Institution, Washington, D.C.

Pasztor, Andy and Asra Q. Nomani (1997), "Air-Safety Panel Urges Big Changes, But Airlines Object," Wall Street Journal, A2, February 4.

Swierenga, David A. (1996), Personal Communication, October 28.

White House Commission on Aviation Safety and Security (1997), "White House Commission on Aviation Safety and Security: Final Report to President Clinton," February 12.

White House Office of the Press Secretary (1997), "Press Briefing by Mike McCurry and Dr. Elaine Kamarck," February 12.

White House Office of the Press Secretary (1996), "Remarks by the President during the White House Commission on Aviation Safety and Security Announcement," September 9.

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