Airports: Coase, but no cigar

by Sandy Ikeda

A year ago the Bush administration proposed auctioning landing slots at Kennedy, LaGuardia, and Newark airports in the New York region. Yesterday the Obama administration canceled these plans. From the NYT article:

“In proposing to rescind the auctions, the department noted that the rule making was highly controversial and that most of those filing comments opposed the slot auctions,” the Transportation Department said in a statement. “The Department also noted that circumstances have changed since the rules were issued, including changes in the economy.”

Among those opposed were the airlines themselves. The Bush administration argued the slots are the property of the FAA while the airlines claimed the slots belong to them, as reported in this NYT article from a year ago, which also noted that at London’s Heathrow the airlines were initially given the slots, some of which were then sold to American companies.

The Bloomberg administration of New York City, which last year lost its own bid to impose London-style tolls on vehicles entering Manhattan below Midtown, still favors the Bush plan.

10 thoughts on “Airports: Coase, but no cigar

  1. Of COURSE, the airlines opposed it. They’d rather play politics than solve the horrific congestion problem in this country. Their contempt for paying customers is total. Besides, there aren’t many domains where the best customers pay the highest prices, though the street drug industry does come to mind.

    I’ve heard that, to be hired as a commercial airline pilot, one must be unable to tell time; to be hired as any other airline employees, I’m told that one must fail a minimum of five (5) lie detector tests. I also hear that fired airline executives all go to work in the cell-phone sector. No wonder that one is universally disliked, too. These airline guys really have a magic touch, kind of like Jack the Ripper.

  2. As you know, ordinarily the Coase theorem assumes well-specified property rights and low transactions costs as separate conditions in order to generate an efficient outcome. What’s interesting (at least to me) in this case is that it seems as though high transations/bargaining costs OVER WHO HAS THE PROPERTY RIGHT is what prevented this proposal from going through. In the real world I guess distributional issues matter a lot.

    (And thank you Sheldon and Art and Peter for the compliment, but, really, I shouldn’t be encouraged.)

  3. Kinda curious how slot auctions would have solved congestion when the number of slots were to remain EXACTLY THE SAME. How would potentially redistributing those same slots to potentially different carriers ease traffic? I’m scratching my head trying to figure it out…

    Also not sure how confiscating slots (and the airlines have a point that slots are their property and for 30 years the DOT agreed with them until last year) is an example of the “market at work”.

  4. The proposed auctions followed up on caps the Administration had mandated earlier. From the article:

    “The cap on flights in and out of Newark Liberty International means the government has now limited flights at all three major airports.”

  5. Yes, the cap was to remain the same and that was my point.

    When the caps were initially introduced, the DOT said no auctions or congestion pricing would take place. They only changed their tune towards the end of Bush’s tenure and they tried to force this through before they were to leave office.

    And again, Mary Peters claimed that auctions would reduce congestion even though the caps were to remain the same. I fail to see how that would have been accomplished.

    By the way, virtually every other airport authority in the world limits flights in and out of their airports. European and Asian airports have always been capped. Aside from Heathrow airport in London, very few airports outside the US have congestion problems (Heathrow’s congestion makes our problem in NY seem like child’s play). No airport authority has sold airport slots nor have they confiscated them to be re-sold. They’ve used reliable methods to distribute slots to carriers. We could learn a few things from the outside.

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