Marginal costs pricing of airport operations in Norway

Abstract

The article first reviews the charge scheme used to finance the airport infrastructure in Norway. Then an econometric approach is taken using empirical data for production and costs from 2007 to 2009 in order to derive long-run marginal costs for passengers and air traffic movements at Norwegian airports using panel data analysis. The marginal costs are then applied as the basis for a revised airport charge scheme designed to meet the principle of maximizing social benefits. The results suggest that there should be a shift towards a relatively higher charge for passengers compared to air traffic movements.

Pricing of Airport Operations

“…The empirical evidence is based on a project initiated in 2010 by the Norwegian Ministry of Transport and Communications with the main objective of revising present airport charges based on principles of economic welfare under revenue restrictions. Some results from this project are discussed by Jørgensen et al (2011) and Mathisen et al (2014).…”

“…The panel data model applied by Mathisen et al (2014) is presented in Equation (1) and argued to have properties in accordance with reasonable a priori assumptions regarding the cost structure at Norwegian airports. It is clear from Equation (1) …”

“…Morgado and Macario (2012) estimated the marginal costs at Portuguese airports and used these to suggest new charges. Our demonstration of Ramsey-style pricing is based on a cost study by Mathisen et al (2014) using both and in a model estimating the marginal costs of airport operations in Norway.…”

Airport Charges – Interactions between Airlines and Airports

“…When solving the Lagrangian function, the optimal charge can be written as (10) * * * * * where 0 is the social cost of raising public funds by 1 Euro (see e.g. Mathisen et al, 2014).…”

“…Studying private airports, Hakimov and Mueller (2014a) introduced the use of Ramsey pricing at uncongested airports with Germany as a case study. Mathisen et al (2014) discussed distribution problems of strictly following the Ramsey rule by raising charges most aggressively at rural airports characterised by generally less elastic demand due to few alternative modes of transport.…”