Does economic regulation improve efficiency? The case of airports

Abstract

Over the past 30 years, regulatory reforms have been introduced to enhance airport efficiency compared to traditional rate-of-return regulation. But have these reforms succeeded? We survey research on the impact of airport regulatory frameworks on technical, cost and allocative efficiency, addressing methodological challenges and identifying gaps for future study. We find that approaches such as total factor productivity, stochastic frontier analysis and data envelopment analysis are useful for assessing the effects of regulation, but many studies miss salient inputs and outputs, particularly in measuring capital. In second stage analyses, governance related variables, such as ownership structure, competition and regulatory design, are often overlooked. Most studies conclude that regulation improves airport efficiency, with dual-till price-caps and light-handed regulation being the more effective. However, light-handed regulation fails to reduce aeronautical charges and there is no consensus on which regulatory model achieves lower charges. Finally, allocative efficiency through peak pricing and slot trading remains unexplored.