Frequent Flyer Miles

Frequent flyer miles exploit business travelers’ willingness to spend other people’s money. Airlines give their passengers frequent flyer miles, which they can exchange for free flights. Frequent flyer miles are a great deal for business travelers, because while the business pays for the ticket the traveler often can use the miles for personal travel.

Imagine that you have a choice between two flights. The first is cheaper, but the second gives you more frequent flyer miles. If you’re paying, you would probably take the less expensive ticket. If, however, your company pays for the ticket, but you get to keep the frequent flyer miles, wouldn’t it be tempting to pick the flight that gives you the most miles? After all, if you’re spending other people’s money, what do you care about the ticket price? Frequent flyer miles can be a bribe for employees to waste their company’s money.

It’s cost-effective to bribe those who spend other people’s money. If I’m spending $1,000 of my own money, then to get me to spend it on your product, you would actually have to give me something worth at least $1,000. If I’m buying for my company, with my company’s money, however, I should be willing to give you $1,000 in return for you giving me only, say, $100.