Among Alfred E. “Fred” Kahn's many accomplishments, none is better remembered than his pivotal role in deregulation of the US airline industry. Kahn's commitment to marry core microeconomic principles with institutional analysis, willingness as Chairman of the Civil Aeronautics Board to step outside the “regulation as usual box,” and appealing wit made him the face of the Airline Deregulation Act of 1978, one of the great microeconomic policy triumphs. Lessons drawn from Kahn's work and the airline deregulation experience remain instructive for current academic research and regulatory policy design across broad sectors of the economy.

This study investigates product safety choices in the airline industry, with particular attention to the role of financial conditions. The analysis uses data on 35 large scheduled passenger airlines over the 1957-86 period to estimate the effect of profitability and other aspects of financial health on accident and incident rates. The results indicate that lower profitability is correlated with higher accident and incident rates, particularly for smaller carriers. These findings support a broad class of theoretical models that suggest links between financial conditions and product quality and may have significant implications for the allocation of safety inspection and enforcement resources.

This study investigates product safety choices in the airline industry, with particular attention to the role of financial conditions. The analysis uses data on 35 large scheduled passenger airlines over the 1957-86 period to estimate the effect of profitability and other aspects of financial health on accident and incident rates. The results indicate that lower profitability is correlated with higher accident and incident rates, particularly for smaller carriers. These findings support a broad class of theoretical models that suggest links between financial conditions and product quality and may have significant implications for the allocation of safety inspection and enforcement resources.

Labor is likely to be an important claimant to firms' rents, particularly in a regulated environment. This study analyzes wage responses to trucking deregulation to test labor rent-sharing hypotheses. The results indicate substantial declines in union wages as a consequence of reduced regulatory rents. Union premia over nonunion wages fell from 50 percent to less than 30 percent, implying aggregate annual losses of $950 million to $1.6 billion. Rent spillovers to nonunion drivers and truck drivers outside the regulated trucking industry appear insignificant. The results suggest that union workers captured more than two-thirds of total industry rents and provide strong support for union rent-sharing hypotheses. Copyright 1987 by University of Chicago Press.

We study dispersion in the prices an airline charges to different passengers on the same route. This variation in fares is substantial: the expected absolute difference in fares between two passengers on a route is 36 percent of the airline's average ticket price. The pattern of observed price dispersion cannot easily be explained by cost differences alone. Dispersion increases on routes with more competition or lower flight density, consistent with discrimination based on customers' willingness to switch to alternative airlines or flights. We argue that the data support models of price discrimination in monopolistically competitive markets.

This study explores corporate responses to 1993 legislation that capped the corporate tax deductibility of top management compensation not qualified as “performance‐based.” Our analysis suggests that the cap may have created a focal point for salary compensation but had little effect on total compensation levels or growth rates at firms likely to be affected by the limit. There is little evidence that the policy significantly increased the performance sensitivity of chief executive officer (CEO) pay at affected firms. We conclude that corporate pay decisions have been relatively insulated from this policy intervention.

The current financial crisis in the commercial airline industry has engendered an active debate over appropriate governmental policies. Proponents of government support, instrumental in legislating a $5 billion cash transfer and $10 billion loan guarantee fund for U.S. carriers following September 11, 2001, point to the critical role that airlines play in the U.S. economy and the devastating effects airline failures could have on air service. Opponents argue that most airlines continue to operate through bankruptcy resolution and that even a complete shutdown of a major carrier, which rarely occurs, would stimulate expansion by other airlines to replace its abandoned flights. This debate highlights the need to understand the causal effect of airline financial distress on airline operations, distinct from correlations that may exist as a result of adverse demand or cost shocks that lead to both service declines and financial distress. We focus on airline Chapter 11 bankruptcy filings, an extreme measure of financial distress. We use data from 1984 through 2001 to evaluate the impact of major bankruptcies on the level of flights and destinations served at U.S. airports. Our results suggest that bankruptcy induces modest declines in service levels, particularly at midsize airports. This raises the question of whether such declines are socially inefficient. Restrictions imposed by the bankruptcy court judge or the creditors of an airline operating under Chapter 11 may affect total industry output or capacity offered if other carriers cannot rapidly replace the production of the constrained firm (i.e., if firms are not homogeneous and entry is not costless). With heterogeneous firms, one firm may be uniquely positioned to supply a flight, and its decision not to do so may lead to a reduction in total service. This is particularly likely in network industries, such as airlines, where there are strong production complementarities across routes. It is also possible, however, that pre-bankruptcy service levels were inefficiently high. The bankrupt carrier may have overprovided service, perhaps in an attempt to build market share, or flight-frequency competition among carriers may have led to excessive flights. In these cases, the flight reduction associated with bankruptcy may cause a movement toward the socially optimal level of service. Our work takes a first step toward resolving this issue, by determining the magnitude of bankruptcy effects on aggregate air service. The results suggest the need for further research to assess its possible welfare implications.

High and rising executive pay levels over the past two decades have attracted considerable popular and political hostility. As Michael Jensen and Kevin J. Murphy (1990 p. 227) argue, these forces may constrain compensation practices in informal and indirect ways. Our earlier work documents the impact of such indirect political constraints on executive compensation in regulated sectors (Paul Joskow et al., 1993, 1996). This study investigates the political use of the corporate tax code to influence executive-pay decisions more broadly. In particular, we analyze the provision of the Omnibus Budget Reconciliation Act of 1993 (OBRA) that eliminated corporate tax deductibility for compensation in excess of $1 million for the CEO and each of the next four highestpaid executives within a firm. Congressional proponents of this legislation argued that this provision would reduce excessive CEO pay by raising its cost to the corporation. Exemptions for qualified performance-based compensation could have further indirect effects by inducing changes in the structure of executive compensation plans. Given the broad scope for exemptions and the minimal impact that tax deductibility of executive pay typically has on overall corporate profitability, however, the real impact of the tax cap on executive-pay patterns remains an open question. This paper, with Rose and Wolfram (2000), extends analyses by Tod Perry and Marc Zenner (1999) and Brian Hall and Jeffrey Liebman (2000), to provide further evidence on the impact of this legislation on CEO pay.