Some REALLY bad economics on global warming

From the Marginal Revolution:

A simple idea for fighting global warming

Repeal the [should have read: "Institute an"] antitrust exemption for the airlines and approval all of their mergers, no matter what.

Higher P, lower Q. And maybe some groups outside the traditional green coalition would support such a change.

By no means a full solution, but maybe better than doing nothing.

Posted by Tyler Cowen

This post makes multiple serious errors. It assumes that mergers create inefficiencies. While it is surely possible that mergers can raise prices, it is also quite likely that mergers increase efficiency, ensure that products can be produced more cheaply, and lower prices. Indeed, mergers can both lower production costs but still increase prices if the increase in monopoly power is large enough. But I know of no real evidence that mergers tend to increase prices. Despite what Tyler is claiming, I know of no reason to believe anti-trust enforcement is competent at determining which mergers increase efficiency and which ones do not. If Tyler thinks that the government is particularly good at discerning mergers that are efficiency creating and those that aren't, he should point to it. Indeed, George Stigler argued that the Sherman Act was passed to protect less efficient firms from competition by more efficient ones (Stigler, George J. 1985. "The Origin of the Sherman Act," Journal of Legal Studies, 1985, 14:1-11). At least as far back as Demsetz's 1973 paper, economists have provided evidence that increased firm size is most likely to arise from increased efficiency (Demsetz, Harold. "Industry Structure, Market Rivalry, and Public Policy." Journal of Law and Economics 16 (April 1973): 1-9).

While not errors of the same magnitude of simple poor logic, it is too bad to see that Tyler accepts the assumption that we need to do something more about global warming.

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Anonymous Anonymous said...

Much more importantly, on a relative basis, airlines contribute little CO2 to the atmosphere. Coal-fired power plants are the primary source of man-made CO2.

3/02/2008 6:51 PM  

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