A Book, the Application, and the Outcomes: How Right Was Alfred Kahn in The Economics of Regulation About the Effects of the Deregulation of the US Domestic Airline Market?

Abstract

This article is concerned with the foresights that Alfred Kahn had when he led the deregulation of the US passenger airline industry, and in particular with the role the ideas in his Economics of Regulation played in his actions. Kahn was a reluctant deregulator of the US interstate airline industry. The 1978 Airline Deregulation Act, which he “fathered,” however, not only ushered in a wave of other similar actions both within and outside of transportation in the United States, but also provided a demonstration effect that resulted in a more general rolling back of microeconomic regulation across the globe. Kahn was head of the US Civil Aeronautics Board for only eighteen months or so, but he brought about considerable changes to the airline industry and, through its spread effects, to all other modes of transportation. Here we focus on the degree to which he actually foresaw, or at least generally predicted, what the outcome of airline deregulation would be. While Kahn himself acknowledged that market outcomes are, almost by definition, unpredictable, he clearly had some ideas of what the results of his would be. Here we look at what he thought would happen, what did happen, and at whether his own short term ex post assessment of outcomes has been of durable accuracy.