Chapter 6: Deregulation as Economic Engineering
Economists, unlike scientists, are rarely able to conduct controlled experiments. But one event - the deregulation of the US domestic civil aviation industry in 1978 - has provided economists with an approximation of a controlled laboratory experiment. For over two decades, the airline industry has been free of government control over prices, entry and exit, but has been subject to anti-trust laws and safety regulations. The infrastructure of the airline industry has also remained under government regulation. As long as fifteen years after the economic deregulation of the airline industry, a Congressional Commission could still point out that ‘...virtually everything an airline does - from pushing off the gate and taking off and landing airplanes, to selecting and changing flight paths, can be done only with the prior approval of a federal air traffic controller.” This influence of the federal government over the operating efficiency of the airline industry has grown with the passage of time. Air traffic has increased and the allocation of rights for the use of infrastructure has become critical. Initially, however, individuals who attempted to evaluate the effects of deregulation of the airline industry in isolation recognised that they could not completely separate such consequences from those that would have occurred had the industry remained subject to regulation. Most researchers approached this methodological hurdle by comparing conditions before deregulation with those obtained during and after it. They interpreted the changes in long-run efficiency benefits as being due to what Winston has called ‘basic theoretical ideas’: . ..an...
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