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Subsidies in air transport markets: The economic consequences of choosing the wrong mechanism

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  • de Rus, Ginés
  • Socorro, M. Pilar

Abstract

In this paper, we analyze the efficiency of ad valorem and specific subsidies for resident passengers in air transport markets. A fixed discount per trip and route is always superior to the ad valorem alternative. We prove that the effectiveness of the subsidy for resident passengers strongly depends on the particular characteristics of the route, such as the level of competition, the proportion of residents, or the shape of residents’ and non-residents’ demand functions. Thus, any evaluation of the effects of such subsidies has to be performed route by route, taking into account the particular characteristics of the route, market share of residents and non-residents, degree of competition, and the period of time when the operations take place.

Suggested Citation

  • de Rus, Ginés & Socorro, M. Pilar, 2022. "Subsidies in air transport markets: The economic consequences of choosing the wrong mechanism," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 160(C).
    • Handle: RePEc:eee:transe:v:160:y:2022:i:c:s1366554522000552
    DOI: 10.1016/j.tre.2022.102659
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    Cited by:

    1. Wu, Hanjun & Hong Tsui, Kan Wai & Ngo, Thanh & Lin, Yi-Hsin, 2023. "Airport subsidies impact on wellbeing of smaller regions: A systemic examination in New Zealand," Transport Policy, Elsevier, vol. 130(C), pages 26-36.
    2. Jiménez, Juan Luis & Valido, Jorge & Pellicer, Alfonso Antonio, 2023. "Evaluating the effect of air transport resident subsidies on non-residents tourists’ expenditure," Journal of Air Transport Management, Elsevier, vol. 106(C).

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    More about this item

    Keywords

    Ad valorem subsidy; Specific subsidy; Residents; Market power; Airlines;
    All these keywords.

    JEL classification:

    • H59 - Public Economics - - National Government Expenditures and Related Policies - - - Other
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation
    • R48 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government Pricing and Policy

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