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.