The Effect of Governance Forms on North American Airport Efficiency: A Comparative Analysis of Airport Authority vs. Government Branch

This paper applies a stochastic cost frontier model to a panel of 54 major airports over 2002-2008 to examine how the two dominant governance forms of publicly owned airports in the United States and Canada, namely, operation and governance by a government (city, county, or state) branch, or by an airport authority, affect airport efficiency performance. Our key findings are (a) airports operated by an airport authority achieve higher cost efficiency (on average, 14% higher technical efficiency) than those operated by a government branch; (b) airports operated by a government branch have lower labor share than those operated by an airport authority; and (c) there is no statistically significant difference in the efficiency performance between airports operated by U.S. airport authorities and Canadian airport authorities

Comparing Airport regulation in Europe: Is there need for a European Regulator?

This paper provides an overview of how the major airports are regulated in Europe. In order to eliminate the potential of airports to exercise market power and protect the public interest, it has become increasingly necessary to set a common regulatory framework. We intend to discuss the need of a single regulator in Europe to monitor or establish the quality of service and the charges practiced by the airports, to ensure cost-relatedness, transparency and non-discrimination. The existing regulatory approaches regarding aeronautical charges and their economic implications are also analyzed. We propose the creation of a European Observatory for this sector.airports, economic regulation, European Observatory

The impact of governance on efficiency: case studies on airports and seaports

Airports and seaports have experienced significant governance reforms over the last few decades. As major airports are argued to have market power, they are subject to some form of economic regulation. Airports used to be subject to rate-of-return regulation. More recently, there has been a reform in airport economic regulation and they are increasingly being subject to incentive based price-cap regulation and light-handed regulation or monitoring. In the policy debate, it is of interest to analyse whether price-cap regulation and light-handed regulation of airports are superior to rate-of-return regulation. In the case of seaports, there has been a reform in their governance model and a large number of seaports now follow the landlord seaport model. In a landlord seaport, the port authority is responsible for monitoring and coordination while specialized private terminal operators are responsible for cargo handling and seaport operations. Policy debates have focused on whether the landlord seaport model leads to superior performance in comparison to the service seaport model where most responsibilities are handled by the port authority or the public sector. Airports and seaports are increasingly being regulated by independent regulators because they are not susceptible to regulatory capture. Policy debates have also focused on whether independent regulators lead to a superior performance in comparison to dependent regulators. The first part of this thesis focuses on airport regulation and its impact on efficiency. We conduct a literature review of the theoretical and empirical literature on airport regulation and efficiency. We find that dual-till price-cap regulation and light-handed regulation are preferable to rate-of-return regulation from an efficiency perspective. We also find that while light-handed regulation leads to efficient airports, it does not necessarily constrain airport charges and hence does not lead to the cheapest airports. We find that independent regulators enhance airport performance. With respect to slot allocation, we find that slot allocation is superior to queuing in terms of capacity, delay and congestion management. However, we find that slot allocation based on economic principles is superior to administrative slot allocation. In this part of the thesis, we also identify gaps in the empirical literature which require further analysis. The next part of the thesis focuses on the impact of governance on the technical efficiency of major Indian seaports. This chapter uses a non-oriented slacks based measure of technical efficiency in the first stage and a fixed effects regression in the second stage in order to analyse the impact of governance on the technical efficiency of the major Indian seaports. From the first stage, we find that most of the seaports have a scope for improvement in technical efficiency. From the second stage analysis, we find that specialization has the highest positive impact on technical efficiency. We hence propose that the major Indian seaports have to specialize because they can benefit from economies of scale. With respect to ownership, we find that external stakeholder participation has a significant positive impact on technical efficiency. This gives evidence that the landlord seaport model is conducive to enhanced technical efficiency. With respect to competition, we find that competition from the non-major Indian seaports from within the state and along the coast has a significant negative impact on the technical efficiency of the major Indian seaports. We argue that this is because of the tiered governance framework, which results in excess capacity at the major Indian seaports. We propose that the seaports should have a common governance, institutional and regulatory framework, which can enhance their performance. With respect to regulation, we find that rate-of-return regulation by an independent regulator is superior to internal regulation by the port authority in terms of technical efficiency. We argue that this is because the independent regulator is not susceptible to regulatory capture unlike the port authorities. The last part of the thesis focuses on the impact of governance on the technical efficiency of container ports from the Far East and Asian region. This chapter uses stochastic frontier analysis in order to estimate a production frontier. It makes use of a single step procedure which can be used to estimate the production frontier as well as to estimate the impact of the governance-related contextual variables on the technical efficiency of these container ports. We estimate the individual as well as the combined effects of the governance-related contextual variables on the technical efficiency of these container ports. From the individual effects model, we find that majority private container ports are significantly more technically efficient in comparison to minority private container ports. This gives evidence that the landlord seaport model is conducive to enhanced technical efficiency. With respect to competition, from the individual effects model, we find that both hinterland and transshipment competition enhance the technical efficiency of these container ports. With respect to regulation, from the individual effects model, we find that regulation by an independent regulator is the most conducive to enhanced technical efficiency. In the combined effects model, a majority private container port which faces high hinterland competition and has no economic regulation is taken as the base case. Most of the other combinations of the contextual variables result in a significantly lower technical efficiency in comparison to the base case. However, a majority private container port which faces low hinterland competition and either has no economic regulation or is regulated by an independent regulator is significantly more technically efficient in comparison to the base case. Our results further show that when a port is majority private and faces low hinterland competition, regulation by an independent regulator results in a significantly higher technical efficiency in comparison to having no economic regulation. We argue that this is caused because there is excessive entry and hence majority private container ports which face low hinterland competition and are regulated by an independent regulator are the most technically efficient. We propose that along with the setting up of independent regulators for container ports, policymakers should also ensure that entry is at an optimal level, which can result in competition that is effective and technical efficiency enhancing

The data chase : what's out there on trade costs and nontariff barriers ?

Trade costs and nontariff barriers are at the forefront of discussions on competitiveness and expanding trade opportunities for developing countries. This paper provides a summary overview of data and indicators relevant to these issues and has been informed by work underway at the World Bank on trade facilitation over the past several years to catalogue data sets and indicators. Although there has been progress in expanding data sets and developing policy-relevant indicators on trade costs and barriers, much more is needed. In order to assess progress toward achieving the Millennium Development Goals, evaluating the impact of development projects, and whether meeting Aid for Trade goals will be met, for example, a dedicated and expansive new effort to collect and assess data is needed. This paper attempts to highlight gaps in data on trade costs and provides insight into the type of new data that might be developed in the future.Transport Economics Policy&Planning,Economic Theory&Research,Trade Law,Free Trade,Trade Policy

US airport ownership, efficiency, and heterogeneity

All US commercial airports are in the public sector yet not all have the same ownership type. For medium and large hub US airports we use stochastic frontier analysis to analyze the efficiency differences for alternative airport ownership types. We find that while form of ownership may matter for cost efficiency, in general its effect is relatively small. Yet type of public sector ownership does have cost efficiency implications in certain environments. Further, when heterogeneity is not controlled, the results change substantially so that type of ownership matters much more which demonstrates the importance of controlling for cross section heterogeneity

Abstracts : policy research working paper series - numbers 2133-2196

This paper contains abstracts of Policy Research Working Paper series Numbers 2133-2196.Environmental Economics&Policies,Economic Theory&Research,Banks&Banking Reform,GovernanceIndicators,Health Economics&Finance

Does privatization spur regulation?Evidence from the regulatory reform of European airports

This paper conducts an empirical analysis of the relationship between privatization and regulation drawing on data from a wide sample of European airports. We find that privatization promotes a shift from basic regulation to a situation of more detailed or non-regulation, depending on the specific characteristics of the privatization process and on the type of airport being privatized. Moreover, we report a significant association between high traffic volumes and more detailed regulation. By contrast, airports where slot allocation is noncoordinated are significantly associated with non-regulation.Privatization; regulation; air transportation; airports JEL classification: L33; L42; L93;

Spatial competition and efficiency : an investigation in the airport sector

This paper analyses the potential impact of airport competition on technical efficiency by applying the spatial stochastic frontier approach (SSFA) rather than traditional model (SFA). The SSFA allows to isolate the cross-sectional spatial dependence and to evaluate the role of intangible factors in influencing the airport economic performance, through the inclusion of the distance matrix and the shared destinations matrix, calibrated for different distances. By analysing statistical differences between the traditional and the spatial model, it is possible to identify the competition effects. This study includes 206 airports at worldwide level. First, the results show the existence of the spatial component, that could not be otherwise captured by the traditional SFA. Moreover, airport competition is found to affect the efficiency level with either a positive or a negative effect, depending on the distance considered in the spatial model

Understanding an Outlier: The U.S. System of Airport Governance and Economic Regulation

Unlike airports in many other countries which have been corporatized or privatized, nearly all U.S. airports continue to be operated by the public sector. They are subject to a system of economic regulation that provides little incentive to control costs or allocate capital efficiently. Yet, despite its apparent shortcomings, the current system has persisted over several decades. This Article explains the persistence of the current U.S. system of airport economic regulation based on price theory, regulatory economics, and public choice principles. It offers supporting empirical evidence for this equilibrium and identifies factors that might lead to a different outcome. Elected officials benefit from the current system because it permits them to bolster public employment, influence large contract awards, and provide financial support for local causes without relying on tax dollars. Airlines tolerate the current system, despite its inefficiencies, because airport costs are not a significant part of the airlines’ cost structure. Also, while airlines have only a limited influence on airport spending decisions at most airports, they have a greater influence on those decisions at airports that are most important to their competitive position. Airlines have more influence at airports with a high proportion of connecting passengers that the airlines can credibly threaten to re-route via other hub airports. Finally, airline executives are risk-averse and fear that the alternative they wind up with could be worse than the status quo. However, they have been willing to support alternatives when the benefits are clearly demonstrated and minimize the risks

Beyond pure public and pure private management models: Mixed firms in the European Airport Industry

The use of private funding and management enjoys an increasing trend in airports. The literature has not paid enough attention to the mixed management models in this industry, although many European airports take the form of mixed firms or Institutional PPP, where ownership is shared between public and private sectors. We examine the determinants of the degree of private participation in the European airport sector. Drawing on a sample of the 100 largest European airports we estimate a multivariate equation in order to determine the role of airport characteristics, fiscal variables and political factors on the extent of private involvement. Our results confirm the alignment between public and private interests in PPPs. Fiscal constraints and market attractiveness promote private participation. Integrated governance models and the share of network carriers prevent the presence of private ownership, while the degree of private participation appears to be pragmatic rather than ideological