Tuesday, August 22, 2006

Passing Along the Cost of Security

Via Ben Mutzabaugh's excellent Today in the Sky blog, we discover a place in Paris that could be described as a microeconomics-free zone. It's the IATA. Consider:
PARIS (AFX) - Giovanni Bisignani, director general of the International Air Transport Association (IATA), said national governments should pay for the additional security costs required to protect airlines from terrorist attacks, instead of imposing new security levies on passenger tickets.

In an interview with French daily Le Monde on Saturday, Bisignani said it is too early to estimate the financial impact of the disruptions seen after an alleged airline terror plot was foiled in the UK earlier this month.

However, he said the global airline industry already pays an additional 5.6 bln usd per year in security costs since the Sept 11, 2001 terror attacks in the US.

'National security is the responsibility of governments,' Bisignani said. 'Very clearly, governments must bear these additional costs for security.'

'There is no reason why rail stations and sports stadiums should benefit from state subsidies, but not airports and airlines,' he added.

It is true that most aspects of national security are the responsibility of governments, including the top level of oversight and a considerable amount of the implementation. But his statement that "... governments must bear these additional costs for security..." is inaccurate in this context.

The presence of a security threat increases the social cost of an additional person taking a flight. Imposing a security levy on people taking flights helps bring the private cost of taking the flight in line with the social cost. A Pigovian tax is exactly the right policy here. (Though I don't claim that the current or prospective levels of these security fees are optimally set.)

On his last statement, I might be tempted to agree with the first part, "There is no reason why rail stations and sports stadiums should benefit from state subsidies ..." if he ended it there. I have always been skeptical of why sports stadiums need public funding--the social and private returns appear to be in line. I don't mind subsidies for rail transportation (again, without signing on to the optimality of the current system), given its ability to relieve congestion and reduce pollution, the benefits of which don't accrue only to the rail passengers.

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