Do carriers internalize congestion costs? Empirical evidence on the internalization question

Economists have long suggested overhauling the existing U.S. airport landing/departure fees to reflect market valuations of scarce runway capacity. Economists, however, do not agree on the optimal congestion-based pricing scheme. While some researchers advocate for a uniform congestion fee regardless of a carrier's airport market share, others suggest that airport tolls should only reflect the congestion costs imposed on other carriers. This paper uses ten years of ontime performance data to empirically determine if carriers internalize congestion costs. While previous researchers (e.g., [Mayer, Christopher, Sinai, Todd, 2003a. Network effects, congestion externalities, and air traffic delays: Or why all delays are not evil. American Economic Review 93 (4), 1194–1215]) use “excess travel time” to measure flight delays, the contribution of this paper is the addition of on-time arrival and delay measures based on actual versus scheduled arrival and departure times. We find that estimates based on these new delay measures reverse earlier findings by Mayer and Sinai [2003a. Network effects, congestion externalities, and air traffic delays: Or why all delays are not evil. American Economic Review 93 (4), 1194–1215] and hence imply that carriers are not internalizing flight congestion costs.