Incorporating negative externalities into productivity assessments of US airports

• We study efficiency of 44 US airports including delays, noise and local pollution.
• We perform a directional distance function and a second-stage analysis.
• With no bad outputs greater aircraft size leads to higher technical efficiency.
• The larger the dimensions of the airport the higher the technical efficiency.
• Results are sensitive to the inclusion of the undesirable outputs.

This paper analyses the efficiency of 44 US airports for the period 2005–2009. In addition to the conventional outputs (i.e., passengers, flights and cargo), we consider three undesirable externalities of airport activities: delays, noise and local air pollution. We adopt a directional distance function approach and perform a second stage analysis to investigate potential determinants of efficiency. Our base case results with only the positive outputs show that the greater the average aircraft size serving an airport and the larger the dimensions of the airport, the higher the technical efficiency. However, our results are sensitive to the inclusion of the undesirable outputs. The implications are that the inclusion of these externalities into the calculation of efficiency may impact policy decisions.