AIRPORT CONGESTION PRICING AND ITS WELFARE IMPLICATIONS: THE CASE OF VARIABLE PASSENGER TIME COSTS

Authors


Room 907, 9/F, CCS Teaching Building, Chinese University of Hong Kong, Shatin, Hong Kong. E-mail: andrewyuen@baf.msmail.cuhk.edu.hk. The authors would like to thank Anthony Boardman, David Gillen, Robin Lindsey, Kevin Milligan, Hugh Neary and Tae Oum for valuable comments on earlier drafts of this paper. All remaining errors are the sole responsibility of the authors.

Abstract

This paper develops an analytical framework for airport congestion pricing by considering variable passenger time costs. We find that, first, congestion delays will not be fully internalized at the carrier level under different market structures, including those airports dominated by a monopoly airline. Therefore, congestion pricing is necessary regardless of the market structures. Second, although congestion pricing is welfare-improving, it may not be Pareto-improving. This might explain why congestion pricing is unpopular in the real world.

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