Monday, August 28, 2023

What is a transaction cost?

This is Joseph.

I thought this was parody. I really, really did. But it seems to be an actual opinion:

This is a fellow at the University of Texas at Austin. 

Let's just take story #1. Why do we not allow private companies to just blow out windows? Well, first of all this sort of approach usually uses a "performance bond" sort of approach. After all, it is expensive to sue SpaceX and SpaceX has lawyers. People might be injured and deserve freedom from injury in their homes. Glass blown out of tall buildings can even be lethal. 

The actual story says:
On the new day, the F.A.A. told SpaceX that, according to its model of the wind’s speed and direction, if the rocket exploded it could create a blast wave that risked damaging the windows of nearby houses. A series of tense meetings followed, with SpaceX presenting its own modelling to establish that the launch was safe, and the F.A.A. refusing to grant permission. Wayne Monteith, then the head of the agency’s space division, was leaving an event at the Cape Canaveral Space Force Station when he received a frustrated call from Musk. “Look, you cannot launch,” Monteith told him. “You’re not cleared to launch.” Musk acknowledged the order.

Musk was on site in Boca Chica when SpaceX launched anyway. The rocket achieved liftoff and successfully performed several maneuvers intended to rehearse those of an eventual manned Starship. But, on landing, the SN8 came in too fast, and exploded on impact. (No windows were damaged.)

It is great that no windows were damaged but I don't see anything in the story about SpaceX offering to cover a multiple of any damages caused. Keep in mind that rockets and planes are tightly regulated for a reason. It may be that the FAA is too tight with regulation, but how do you balance that with too risky? 

But the real issue here is that the homeowners should be free from capricious damage and regulation is how we manage risks. If windows were damaged is there any evidence that these bills would be paid or would it be the start of either costly litigation or just an unrecoverable cost? 

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