A welfare analysis of subsidies for airports

The welfare of residents and profitability of business in many medium-sized MSAs would be improved if their airports had a higher level of service, for example reflected by more frequent flights serving more destinations. The level of service at such airports may rise with the number of enplanements, making total enplanements and the level of service subject to a positive feedback effect. Using a new annual data set put together by combining five sources for the years 2002 through 2012, we find evidence for such a positive feedback effect. We argue that subsidies at smaller airports may be welfare-enhancing in the presence of such an effect.