Airport congestion pricing and capacity: Cost recovery with per-flight or per-passenger charges

Abstract

This study investigates congestion pricing and capacity investment for internationally interlinked airports considering cost recovery. Our global welfare maximization shows that “single pricing per-flight” or “single pricing per-passenger” could be sufficiently cost-recovering alternatives when first-best per-passenger subsidies are not feasible under “mix pricing (choosing per-flight and per-passenger charges).” However, each cost-recovering single-pricing method causes distortions, and single pricing per-flight is the smaller distortive. Our local welfare maximization shows similar results when per-passenger subsidies under mix pricing for each country are not feasible. Surprisingly, when each country's mix pricing does not require per-passenger subsidies, the distortions under cost-recovering single pricing per-flight may be smaller than those under cost-recovering mix pricing. However, each airport's capacity investment can be socially efficient only when single pricing per-passenger is adopted.