Understanding relative efficiency among airports: A general dynamic model for distinguishing technical and allocative efficiency

• We investigate the impact of both ownership and regulation on airport technical and allocative efficiencies.
• We find that adding economic regulation leads to a decrease in technical efficiency in the short-run.
• There are relatively small changes, in the short run, resulting from improving allocative efficiency.
• In the long-run, inefficiency decreases by moving away from government owned to fully privatized airports.

The paper introduces a new dynamic frontier model that is used to analyze the impact of both ownership and regulation on airport technical and allocative efficiencies. We differentiate between the short and long-term effects. Based on a large sample of international airports, we find in the short-run the majority of the improvements are from reducing technical inefficiency, which come for the most part from adjusting output, something that can be accomplished in the short-term. There are relatively small changes, in the short run, resulting from improving allocative efficiency. We find that adding economic regulation leads to a decrease in technical efficiency in the short-run. Quite different conclusions hold for the long-term; there are improvements available from reducing allocative inefficiency and comparable benefits are available from cutting technical inefficiency. In the long-run we find that technical and allocative inefficiency decreases by moving away from government owned to fully privatized airports and moving away from rigid regulation.