An economic assessment of airport incentive regulation

Nicole Adler; Peter Forsyth; Juergen Mueller; Hans Martin Niemeier

doi:10.1016/j.tranpol.2015.03.008

An economic assessment of airport incentive regulation

Nicole Adler, Peter Forsyth, Juergen Mueller^*, Hans Martin Niemeier

^*Corresponding author for this work

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Abstract

There has been a gradual trend towards incentive regulation of airports since the privatization of BAA in 1986. Airports are price capped in several countries belonging to the European Union, as well as elsewhere, notably India. However, most of the price caps are not a pure price cap in which the X-factor is set independently of the cost of the regulated airport. Typically, hybrid price caps are used and combined with sometimes complex mechanisms like sliding scales, quality incentives and investment obligations, such that the incentive structures may become distorted. We provide an overview of the changes in the governance structure of airports as a result of privatization, analyze how far the regulatory institutions obey the principles of'good' regulation, such as fairness and transparency, and investigate the performance of the new regulation in terms of allocative efficiency by reviewing benchmarking studies. Finally, we assess the impact of incentive regulation on productive efficiency using data envelopment analysis and second stage regression, which suggests that incentive regulation is superior to cost plus.

Original language	American English
Pages (from-to)	5-15
Number of pages	11
Journal	Transport Policy
Volume	41
DOIs	https://doi.org/10.1016/j.tranpol.2015.03.008
State	Published - 1 Jul 2015

Bibliographical note

Funding Information:
This paper arose from a research project entitled “Airport Benchmarking by Economic Regulators” produced on behalf of the Netherlands Office of Transport Regulation (NMa). The data were provided by the German Airport Performance research project, which was kindly supported by the German Federal Ministry of Education and Research (see www.gap-projekt.de). We are also grateful to the Australian Research Council and the Recanati Foundation for their support. We thank David Starkie for his ever helpful comments. All errors are our own.

Publisher Copyright:
© 2015 Published by Elsevier Ltd.

Keywords

Airport economic policy
Airport performance
Competition and privatization of airports
Regulation

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10.1016/j.tranpol.2015.03.008

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abstract = "There has been a gradual trend towards incentive regulation of airports since the privatization of BAA in 1986. Airports are price capped in several countries belonging to the European Union, as well as elsewhere, notably India. However, most of the price caps are not a pure price cap in which the X-factor is set independently of the cost of the regulated airport. Typically, hybrid price caps are used and combined with sometimes complex mechanisms like sliding scales, quality incentives and investment obligations, such that the incentive structures may become distorted. We provide an overview of the changes in the governance structure of airports as a result of privatization, analyze how far the regulatory institutions obey the principles of'good' regulation, such as fairness and transparency, and investigate the performance of the new regulation in terms of allocative efficiency by reviewing benchmarking studies. Finally, we assess the impact of incentive regulation on productive efficiency using data envelopment analysis and second stage regression, which suggests that incentive regulation is superior to cost plus.",

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N2 - There has been a gradual trend towards incentive regulation of airports since the privatization of BAA in 1986. Airports are price capped in several countries belonging to the European Union, as well as elsewhere, notably India. However, most of the price caps are not a pure price cap in which the X-factor is set independently of the cost of the regulated airport. Typically, hybrid price caps are used and combined with sometimes complex mechanisms like sliding scales, quality incentives and investment obligations, such that the incentive structures may become distorted. We provide an overview of the changes in the governance structure of airports as a result of privatization, analyze how far the regulatory institutions obey the principles of'good' regulation, such as fairness and transparency, and investigate the performance of the new regulation in terms of allocative efficiency by reviewing benchmarking studies. Finally, we assess the impact of incentive regulation on productive efficiency using data envelopment analysis and second stage regression, which suggests that incentive regulation is superior to cost plus.

AB - There has been a gradual trend towards incentive regulation of airports since the privatization of BAA in 1986. Airports are price capped in several countries belonging to the European Union, as well as elsewhere, notably India. However, most of the price caps are not a pure price cap in which the X-factor is set independently of the cost of the regulated airport. Typically, hybrid price caps are used and combined with sometimes complex mechanisms like sliding scales, quality incentives and investment obligations, such that the incentive structures may become distorted. We provide an overview of the changes in the governance structure of airports as a result of privatization, analyze how far the regulatory institutions obey the principles of'good' regulation, such as fairness and transparency, and investigate the performance of the new regulation in terms of allocative efficiency by reviewing benchmarking studies. Finally, we assess the impact of incentive regulation on productive efficiency using data envelopment analysis and second stage regression, which suggests that incentive regulation is superior to cost plus.

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An economic assessment of airport incentive regulation

Abstract

Bibliographical note

Keywords

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