Emma Thompson, Heathrow expansion and revealed preferences

Economists often identify a dichotomy between people’s stated preferences and the preferences that are revealed when people are actually required to choose between scarce uses of their resources (such as time and money).

For example, many people state that they dislike anonymous out-of-town shopping malls, but when faced with the actual choice of visiting a clean, convenient, warm shopping centre with a wide variety of stores conveniently located, or walking around a cold, wet, exposed town centre where shops are dispersed across a wide geographical area, they then reveal their true preference for the shopping mall.

In other words, stated preferences often reflect idealised commitments where there is no necessity to make trade-offs between alternative uses of scarce resources, whereas revealed preferences provide a more accurate reflection of our true values given the facts of the real world.

The actress Emma Thompson provided a good example of the dichotomy between stated and revealed preferences this week. On Friday she participated in the campaign to stop Heathrow expansion, signing the deeds to purchase land that had been earmarked for the airport’s third runway as part of a strategy to prevent the project from going ahead. On Sunday, two days later, Ms Thompson was in the national media again, this time in Los Angeles attending the Golden Globe awards.

The only way that Ms Thompson could have travelled from London to LA was by flying. Here we have Ms Thompson’s stated preference for limiting air travel and her revealed preference for the benefits that air travel brings. Indeed both Emma Thompson and fellow campaigner Zac Goldsmith are likely to have clocked up far more air miles than the average person.

The fact that Emma Thompson may appear to say one thing and do another does not necessarily invalidate the case against airport expansion. However, it does suggest that decisions about the supply of air travel in the UK (and other countries) should be informed by knowledge of people’s revealed preferences in the context of the trade-offs between different uses of scarce resources. Leaving such planning decisions to the market (that is, a system of private property rights under the rule of law informed by the price mechanism) is one way of achieving such an outcome.

But Thompson is revealing a preference. She is buying land which she would rather leave untouched by a runway. Others can reveal their preferences by buying it back to build the runway if they wish – the highest bidder wins (the one whose preferences are strongest!). Now, you could say that she is just being obstructive by buying the land. But this just takes us to the holdout problem which is a big issue in the compulsory purchase literature and on which there is no unanimity amongst “pragmatic” free-market economists.As I have mentioned before, some definition of property rights in relation to noise etc would help resolve these problems as rights to create more noise could be purchased.

Brilliant!As to, “a system of private property rights under the rule of law informed by the price mechanism”, I suggested one way in which this could be applied in practice on the thread to which Philip linked.As to the ‘holdout’ problem, as ever, Land Value Tax would sort it out. If BAA offer Emma T £1m for her plot and she turns it down, she has to pay LVT on that (possibly inflated) amount, so BAA then offers £10m and so on until she caves in or goes bankrupt.

If you’re interested, I did three posts on auctioning landing slots, click link above. I was particularly proud of this conclusion“… it would, to be frank, be a bit of a waste of concrete and radar equipment to build airports that sometimes stand empty for year on end. However the NIMBYs and Greenies are in charge, which is why we have chronic airport undercapacity – which is why the slots have such a colossal scarcity value – and it surely can’t have been the intention of the NIMBYs and Greenies to generate windfall gains for BMI shareholders or to encourage a system whereby airlines fly empty planes, can it?”

You raise an interesting point which is often made. However, I don’t see it as a conflict between revealed and stated preferences. I think it is a very common phenomenum to like/do an individual act, but not like the social & environmental consequences of many people doing it.20 years ago, when airlines has smoking sections at the rear of the plane, in a survey I conducted, we found that half the smokers did not want to be in the bad air of the smoking section – they just wanted somewhere to go for a smoke. There are many other examples (such as, perhaps, your out-of-town shopping malls) – and we need to work-out solutions. It shouldn’t just be an individual ethical problem.

What nobody has yet discovered is what class she travels in. If she really cares about the planet and attempts to minimise her impact on CO2 levels, she would fly economy as per person it uses between four and ten times less fuel than Business or first. Thus the dichotomy between stated and revealed preferences may be more significant than suggested. Thus if we knew her actual choice of class of seat, we could determine whether she is in fact a total hypocrite as I suspect.

It is interesting to conjecture what might be Ms Thompson’s preferences, but as economists we know that without consultation, socio-economic preference is not revealed without dialogue. Indeed, by revealing a preference against further intensification of use of Heathrow Airport, Ms Thompson’s land purchase only reveals that, singularly. As economists we must find out more: for example, we know Ms Thompson is willing to pay for the environment, but retain the benefits of air travel for her business, professional use. What options can we explore with air travellers who care about the local environment and earn tax revenue for the macro economy. We need to value these more widely.

But Thompson is revealing a preference. She is buying land which she would rather leave untouched by a runway. Others can reveal their preferences by buying it back to build the runway if they wish – the highest bidder wins (the one whose preferences are strongest!). Now, you could say that she is just being obstructive by buying the land. But this just takes us to the holdout problem which is a big issue in the compulsory purchase literature and on which there is no unanimity amongst “pragmatic” free-market economists.As I have mentioned before, some definition of property rights in relation to noise etc would help resolve these problems as rights to create more noise could be purchased.

Brilliant!As to, “a system of private property rights under the rule of law informed by the price mechanism”, I suggested one way in which this could be applied in practice on the thread to which Philip linked.As to the ‘holdout’ problem, as ever, Land Value Tax would sort it out. If BAA offer Emma T £1m for her plot and she turns it down, she has to pay LVT on that (possibly inflated) amount, so BAA then offers £10m and so on until she caves in or goes bankrupt.

If you’re interested, I did three posts on auctioning landing slots, click link above. I was particularly proud of this conclusion“… it would, to be frank, be a bit of a waste of concrete and radar equipment to build airports that sometimes stand empty for year on end. However the NIMBYs and Greenies are in charge, which is why we have chronic airport undercapacity – which is why the slots have such a colossal scarcity value – and it surely can’t have been the intention of the NIMBYs and Greenies to generate windfall gains for BMI shareholders or to encourage a system whereby airlines fly empty planes, can it?”

You raise an interesting point which is often made. However, I don’t see it as a conflict between revealed and stated preferences. I think it is a very common phenomenum to like/do an individual act, but not like the social & environmental consequences of many people doing it.20 years ago, when airlines has smoking sections at the rear of the plane, in a survey I conducted, we found that half the smokers did not want to be in the bad air of the smoking section – they just wanted somewhere to go for a smoke. There are many other examples (such as, perhaps, your out-of-town shopping malls) – and we need to work-out solutions. It shouldn’t just be an individual ethical problem.

What nobody has yet discovered is what class she travels in. If she really cares about the planet and attempts to minimise her impact on CO2 levels, she would fly economy as per person it uses between four and ten times less fuel than Business or first. Thus the dichotomy between stated and revealed preferences may be more significant than suggested. Thus if we knew her actual choice of class of seat, we could determine whether she is in fact a total hypocrite as I suspect.

It is interesting to conjecture what might be Ms Thompson’s preferences, but as economists we know that without consultation, socio-economic preference is not revealed without dialogue. Indeed, by revealing a preference against further intensification of use of Heathrow Airport, Ms Thompson’s land purchase only reveals that, singularly. As economists we must find out more: for example, we know Ms Thompson is willing to pay for the environment, but retain the benefits of air travel for her business, professional use. What options can we explore with air travellers who care about the local environment and earn tax revenue for the macro economy. We need to value these more widely.

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