Endogenous-weight TFP measurement: methodology and its application to Japanese-airport benchmarking

Abstract

Unlike the standard economic theory assumes, airport activities yield various kinds of outputs such as passenger loading/unloading, aircraft movements, and cargo handling, while sharing the same set of inputs. Therefore, measuring the efficiency of the airport activities gives rise to a method that are suited to this joint-production characteristics. The purpose of this paper is twofold. In contrast with the conventional methods, the paper introduces the Endogenous-Weight TFP (EW-TFP) method as an effective technique to measure such efficiencies. After verifying its practical applicability through Monte-Carlo experiments, this paper then applies the EW-TFP method to the Japanese-airport benchmarking study. Results show that Japanese domestic trunk-route airports are more efficient than others, while regional airports in Japan are relatively inefficient. Results also show that Japanese airports exhibit increasing return, thus implying the need for government intervention in the optimal provision of airport services.