Economic Calculation and Transaction Costs: The Case of the Airline Oversales Auction System

41 Pages Posted: 27 Dec 2021 Last revised: 21 Mar 2022

See all articles by Peter J. Boettke

Peter J. Boettke

George Mason University - Department of Economics; Mercatus Center at George Mason University

Rosolino Candela

George Mason University - Mercatus Center

Peter Jacobsen

Ottawa University; Ottawa University - Gwartney Institute at Ottawa University

Date Written: December 16, 2021

Abstract

According to Nobel Laureate Edmund Phelps (2013, p. 123), Mises’s critique of economic calculation under socialism renders him the originator of the economic analysis of property rights. This paper also suggests that implicit to Mises’s impossibility theorem was also the origins of the theory of transaction costs. This raises the following question: what is the relationship, if any, between the process of economic calculation and the concept of transaction costs? Filtered through a Misesian lens, we argue that transaction costs are the costs of engaging in economic calculation. We illustrate our theoretical point utilizing the case of airline oversales auction system first proposed by Julian Simon (1968). In doing so, we reframe the problem of airline oversales from a transaction-cost approach, one in which property rights in airline seats are initially poorly defined. By doing so, we illustrate that resources expended to discover the valuable attributes of a good (in this case airline seats), the terms of exchange between potential trading partners, as well as enforcing the terms of an exchange, all of which are transaction costs, are also, by definition, the costs of calculating the exchange value of goods. Thus, the airlines oversales auction system is illustrative of an institutional solution to the problem of economic calculation via a reduction of transaction costs.

Keywords: Ludwig von Mises, Property Rights, Transaction Costs, Property Rights, Airline Oversales, Julian Simon

JEL Classification: B31, B53, P5, P14

Suggested Citation

Boettke, Peter J. and Boettke, Peter J. and Candela, Rosolino and Jacobsen, Peter, Economic Calculation and Transaction Costs: The Case of the Airline Oversales Auction System (December 16, 2021). GMU Working Paper in Economics No. 22-06, Available at SSRN: https://ssrn.com/abstract=3987503 or http://dx.doi.org/10.2139/ssrn.3987503

Peter J. Boettke

George Mason University - Department of Economics ( email )

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Rosolino Candela

George Mason University - Mercatus Center ( email )

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Peter Jacobsen (Contact Author)

Ottawa University ( email )

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United States

Ottawa University - Gwartney Institute at Ottawa University ( email )

Ottawa, KS 66067
United States

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