Congestion Pricing, Slot Sales and Slot Trading in Aviation

Tinbergen Institute Discussion Paper No. TI 08-030/3

19 Pages Posted: 27 Mar 2008

See all articles by Erik T. Verhoef

Erik T. Verhoef

VU University Amsterdam - Department of Spatial Economics; Vrije Universiteit Amsterdam, School of Business and Economics; Tinbergen Institute

Date Written: March 18, 2008

Abstract

This paper studies the regulation of an airline duopoly on a congested airport. Regulation should then address two market failures: uninternalized congestion, and overpricing due to market power. We find that first-best charges are differentiated over airlines if asymmetric, and completely drive out the least efficient airline from the market. This is not generally the case for an undifferentiated charge, which is found to be a weighted average of first-best charge rules for the two airlines, and is less-than-optimally efficient because of its inability to differentiate between them. Tradeable slots may yield the first-best outcome if the congestion externality is relatively important and the market power distortion relatively unimportant, but may be less efficient than non-intervention when the reverse is true.

Keywords: Airport congestion, congestion pricing, slot trading, tradeable permits, second-best

JEL Classification: R41, R48, D62

Suggested Citation

Verhoef, Erik T., Congestion Pricing, Slot Sales and Slot Trading in Aviation (March 18, 2008). Tinbergen Institute Discussion Paper No. TI 08-030/3, Available at SSRN: https://ssrn.com/abstract=1113270 or http://dx.doi.org/10.2139/ssrn.1113270

Erik T. Verhoef (Contact Author)

VU University Amsterdam - Department of Spatial Economics ( email )

De Boelelaan 1105
1081HV Amsterdam
Netherlands
+31 020 4446094 (Phone)
+31 020 4446004 (Fax)

Vrije Universiteit Amsterdam, School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands

Tinbergen Institute ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

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