Schelling’s Theory of Contracts and Rules: Applications for Procedure Design and Safety Analysis

Abstract

Rules enforced on front-line operators are not only unique to aviation and other high-risk industries; in fact, the topic of rules is just as important in business, the economics of the Market, and public policy. The problem of how to design rules and procedures, with a keen eye toward compliance, has a long tradition in contractual relations. This tradition has produced a rich set of tactics to improve, by anticipatory design, contract and rule compliance. Along the same lines, rules that people devise for self-governance – such as those for prevention and performance – also contain many innovative tactics to improve compliance. The discussion is based on the work of the late Thomas Schelling (1921-2017) who was awarded the 2005 Nobel Prize in Economics for "having enhanced our understanding of conflict and cooperation through game-theory analysis." His work on the topic of conflict, contracts, and rules is the basis for the framework proposed here. We also extend his work to procedure design, safety analysis, and discuss some implications of framework via one aviation example (stabilized approach procedure).