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Airport use agreements and cost efficiency of U.S. airports

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  • Karanki, Fecri
  • Lim, Siew Hoon

Abstract

In this study, we examined the impact of airport use agreements on the cost efficiency of large and medium U.S. hub airports in the years between 2009 and 2019 using a stochastic cost frontier model. We found that residual airports were less cost-efficient than compensatory and hybrid airports. The cost inefficiency in turn may translate into higher user fees for the signatory airlines. The result suggests that the residual rate-setting method may exert a moral hazard problem of airport management, because under such method, any cost deficit incurred by the airport will be covered by the signatory airlines, and this arrangement effectively shifts the risk of airport budget shortfall away from airport management.

Suggested Citation

  • Karanki, Fecri & Lim, Siew Hoon, 2021. "Airport use agreements and cost efficiency of U.S. airports," Transport Policy, Elsevier, vol. 114(C), pages 68-77.
    • Handle: RePEc:eee:trapol:v:114:y:2021:i:c:p:68-77
    DOI: 10.1016/j.tranpol.2021.09.006
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