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Persistent and temporary inefficiency in airport cost function: An application to Italy

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  • Martini, Gianmaria
  • Scotti, Davide
  • Viola, Domenico
  • Vittadini, Giorgio

Abstract

We study an airport cost function with a four-random components stochastic frontier model that split the inefficiency in two parts: (1) persistent (long-run) and (2) temporary (short-run). We analyze as determinant of both inefficiency types several exogenous factors such as the airport ownership and LCCs share. We apply the model to the Italian airport system during the period 2010–15. We find that (1) average total cost inefficiency is 14%, and that a it is mainly due to temporary inefficiency, (2) that work load units have the largest cost–output elasticity (+0.31%), (3) that price of airport services has the largest cost-input elasticity (+0.50%) while labor has a +0.41% cost elasticity and capital only a +0.09% cost elasticity. There is also evidence of economies of scale. Moreover we find that LCCs reduce both types of inefficiency and that private airports are more cost efficient than public ones. These findings have interesting managerial (e.g., strictly monitoring service costs, expand LCCs flights) and policy (e.g., provide incentive to reduce temporary inefficiency, push airport privatization) implications.

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  • Martini, Gianmaria & Scotti, Davide & Viola, Domenico & Vittadini, Giorgio, 2020. "Persistent and temporary inefficiency in airport cost function: An application to Italy," Transportation Research Part A: Policy and Practice, Elsevier, vol. 132(C), pages 999-1019.
  • Handle: RePEc:eee:transa:v:132:y:2020:i:c:p:999-1019
    DOI: 10.1016/j.tra.2019.12.016
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    Keywords

    Airport persistent and transient inefficiency; Determinants of inefficiency; Closed Skew Normal stochastic frontier; R41; C23; D24;
    All these keywords.

    JEL classification:

    • R41 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Transportation: Demand, Supply, and Congestion; Travel Time; Safety and Accidents; Transportation Noise
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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