Performance assessment of UK airports: Evidence from a Bayesian dynamic frontier model

This paper analyzes the cost efficiency of UK airports over the period 1998–2008, using a Bayesian dynamic frontier model. This model provides a more structural explanation for the variation in airports inefficiency than has been presented by previous models, and also allows for cost inefficiency effects. On average, the dynamic frontier results, estimated via the Markov Chain Monte-Carlo simulation, indicate that UK airports improved their efficiency over time. Factors found to be important determinants of cost efficiency include airport size, price regulation, price cap variations and airport competition. Policy implications of the results are derived.

► Uses a stochastic frontier cost approach employing a Bayesian dynamic frontier model.
► Examines how differences in the level of the price cap might affect airport cost efficiency.
► UK airports improved their cost efficiency over time and by a considerable margin.
► Important determinants of cost efficiency include price cap regulation and price cap variation.