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Lately, the biggest story in the news is about the volcanic eruption in Iceland. The costs to Iceland are significant enough, but the real story is about the disruption of air flights in Europe.

The social cost of the flight disruption is phenominal. The cost of stranded travelers is enough, but there are also huge costs from the stranded cargo, like fresh fruit that can not get into northen Europe.

At least one industry is benefiting. In Europe, rental cars are in great demand now, and companies like Hertz are enjoying greater demand for their services. This is a clear example of a substitute good–obviously–but the real challenge of the economics here is how to measure the costs and benefits of the volcano.

It seems to me that the costs must outweigh any benefits by a great amount. Money costs lost by the airlines may be made-up by the gains from car rentals and other transportation, but the costs to delayed travelers and delayed delivery of goods is huge.

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One Comment

  1. At its worst, the crisis affected nearly a third of world air travel. About one hundred thousand flights were canceled or delayed.
    The International Air Transport Association estimated the cost to airlines at nearly two billion dollars.But that does not include costs about those flowers, fruits and vegetables which could not be flown to Europe.
    Other businesses that depend on air travel, including hotels and vacation places, also suffered.
    So I believe that the costs are more than benefits!


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