Alternative Forms of Economic Regulation and their Efficiency Implications for Airports

Abstract

This paper investigates the effects of different forms of price regulation on airport efficiency. Our investigation takes into account the interaction between concession profits and price regulations. Our results show that while ROR regulation may lead to over-investment in capacity, price-cap regulation is prone to under-investment. The extent of the under-investment is found to be less under the dual-till price cap than under the single-till price cap. Our empirical investigation of capital input productivity and total factor productivity confirm the analytical findings. In particular, the total factor productivity is greater under the dual-till price cap than under either the single-till price cap or single-till ROR. Our analysis appears to support the argument made by several economists that dual-till regulation would be better than the single-till regulation in terms of economic efficiency, especially for large and busy airports.

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