The Economic Way of Thinking 13th Edition by David Prychitko, Peter Boettke, Paul Heyne

Exercise 12

Airlines are willing to overbook flights because they know that people who make reservations do not always show up. Sometimes, however, this results in more people holding reservations at the gate than there are seats on the flight.
(a) Is overbooking efficient from the airlines' standpoint?
(b) Is overbooking efficient from the standpoint of passengers?
(c) As a consequence of a 1976 court case that Ralph Nader won against an airline that had "bumped" him, the federal government adopted a rule requiring airlines to compensate people who were denied boarding despite holding a confirmed reservation. As a result, the airlines started to ask for volunteers who were willing to take a later flight whenever a flight turned out to be overbooked. Who benefited from this new regulation?
(d) If passengers can in effect sell their confirmed reservations when a seat shortage arises, why can't passengers sell their right to land at a crowded airport when a shortage of landing slots arises?
(e) Before 1976, the airlines often denied boarding to passengers who were flying on urgent business in favor of passengers who were not in any particular hurry to reach their destinations. This would seem to be a cooperative failure. What was the crucial step that lowered transaction costs sufficiently to transform the frustrating situation before 1976, when the last persons to show up at the gate were denied boarding, into the current system, where only volunteers are denied boarding?