Child Safety Seats on Commercial Airliners: A Demonstration of Cross-Price Elasticities

The cross-price elasticity concept can be difficult for microeconomics students to grasp. The authors provide a real-life application of cross-price elasticities in policymaking. After a debate that spanned more than a decade and included input from safety engineers, medical personnel, politicians, and economists, the Federal Aviation Administration (FAA) recently announced that it would not mandate the use of child safety seats on commercial airliners. The FAA's analysis revealed that if families were forced to purchase additional airline tickets, they might opt to drive rather than fly, and driving represents a far more dangerous mode of travel. Given the relatively high cross-price elasticity between automobile travel and air travel, the FAA concluded that the mandatory child safety seat policy failed to pass the cost-benefit test—the policy would lead to a net increase in the number of fatalities. The authors review the FAA's decision-making process and highlight the role of economic analysis in developing public policy.