— (continuation of the article)—
As is, overhead bin space is allocated on a first come first served basis. A better system would allocate first to those with the highest value on time, risk-abatement, and comfort, and then to others who can claim left-over space or place them underfoot or simply check them in advance at the ticket counter.

Now you might complain that this isn’t exactly fair. It’s treating people differently; but that is the essential point. This efficient solution is very different from the airlines’ current equitable solution. For example, you might think that the problem could be solved by simply enforcing current restrictions on carry-on bags more strictly. But airlines are already doing that. Or maybe you might suggest airlines allow only one carry-on bag. This would certainly get rid of the over-use problem, but now there would be a under-use problem. I recently received a satirical email the other day about New York City’s Central Park, another example of the Tragedy of the Commons. This email reported that the NYC Park Authority planned on releasing a small pack of wolves into the park in order to cut down on the over-use problem. It’s a funny idea in a dark sort of way, and it’s thoroughly equitable unless you factor in slow runners. But it’s not going to bring about an efficient outcome. It’s just like telling people you can’t carry any bags on board an airplane.

The way airlines currently allocate bin space, while not as deadly as a pack of wolves, is still pretty wasteful. Why is this so? First, passengers don’t have property rights over their own bin space (like they do their own seats, their own peanuts, and their own complimentary magazine, for example). So there is no way for someone who boards the plane late to guarantee himself some bin space, even if he values it highly. At the same time, there is no way for someone who does not value the bin space highly to be compensated for giving up her space. The bottom line answer to this question can be stated rather simply: we’re missing a market for overhead bin space. To solve the inefficiency, we need to somehow think of a way for passengers to trade for overhead bin space according to the value they place on it, which really means their value of time and comfort and their perceived risk of checking bags.

What would this market look like? The first thing is to create property rights. Each passenger, or each seat, will come with a given amount of bin space—say, enough for one standard carry-on bag. This way, people who want to carry two bags with them will be forced to place one underfoot. But going only this far merely achieves an equitable solution, not an efficient one. We’ve already seen why this type of solution is no good. Let’s try to do a little better. If we give passengers not only property rights over their bin space, but the ability to trade with other passengers for overhead bin space, the situation would greatly improve. This way, if someone doesn’t care about checking their bags, they could “sell” their bin space to another passenger. And those who want to carry more luggage on board can do so, just as long as they compensate the owners of the extra needed bin space accordingly.

Okay, this sounds good in theory, but what about the practical side? We can’t exactly expect people to run up and down the aisles shouting out their supply and demand prices for overhead bins. Talk about wasting time! But there is no reason to resort to this kind of barter solution. Instead, let’s capitalize on the airlines’ existing computerized information system to settle this for us. Airlines would sell overhead bin space as an add-on to a passenger ticket. “Would you like overhead space with that?” If you’re in a hurry, or you’re carrying something really valuable or breakable, you’re answer would very likely be “yes.” And you would pay a little extra for your ticket in order to ensure some overhead bin space. On the other hand, if you don’t want to pay the extra, just say “no” and go on your merry way to the baggage carousel. Soon enough, the airlines will balance out all the yes’s and no’s and reach an equilibrium overhead bin price, just like all other markets work when they are not overly regulated. Those who really value the space highly will get it, and those who do not will not. An efficient outcome.

Now you might object once again by claiming this is just better for the airlines because they now get to charge an even higher ticket price for overhead space. That’s a good objection. But I don’t think that will happen. Here is why. Airlines already charge for overhead bin space, whether you use it or not! A small portion of every ticket goes to offset the cost of creating overhead bin space. But if the market we’ve just described were the system for allocating bin space, airlines would compensate those who do not use bins with a lower ticket price. Likewise, they would charge those who do use bin space even more than now under the across-the-board system. Also, since a market for bin space will make flights faster and more efficient, costs should fall (even if by a small amount). So, in effect, airlines would drop the base price, and then add on if you want overhead space. (Another way to see this: in a barter situation with property rights, people would be compensated when they give up bin space—there is every reason to expect this would also be the case when the airlines act as the auctioneer.)

So you can see that the economic way of thinking is capable of solving interesting problems and making people’s lives better off—even if just a little bit, as in the case of overhead bin space. But if you add up all the little ways economic thinking can improve the way societies organize their interactions, it would be quite a sum indeed. The key is, we’re not simply imposing a new regulation on people’s decisions. Instead, we’re recognizing that people respond to incentives, and we’re seeing why markets—where they are allowed to function properly—ensure the best outcome for all people involved.