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Friday, September 30, 2005

Airports

The link to the article no longer takes you to the article I read, but that’s okay because the article wasn’t really relevant to my question anyway. The article mainly discussed tax reform for the Colorado Springs airport. However, there was one statement in the article that prompted my question. That statement was, “I’m not telling you that terminals should be privately financed or airports should be privatized, but it’s a way to go for some to fill the separation between where airports and airlines are going. Developers have capital.” This made me wonder…why are airports government owned in the first place?

The first thing I tried to do was to fit airports into a basic supply and demand model. But what is their product? At first I thought it was airplane rides, but they don’t supply airplane rides, they supply runways, terminals, gates, space for other businesses, and the services associated with an airport. Then I tired to find a market failure in their products or services. I can’t find any externalities, airports aren’t really monopolies since they are located in multiple places throughout the United States, and personally I don’t think they are public goods. I suppose some may say that they are a public good, but I don’t think so. They are rival (just look at the competition between DIA and the Colorado Springs airport) and they are certainly excludible. So, from an efficiency stand point it doesn’t seem to me that they should be government owned.

Perhaps the reason is safety. Is it possible that no other organization other than the government, would be able to coordinate safe takeoffs and landings of multiply airplanes at the same time? My hunch is that there are many organizations that could do just as good of a job as local governments currently do. It’s not like the government is actually sitting in the airport on a daily basis making sure everything runs smoothly. The people who actually run airports or sit in watchtowers are regular people just like you and me. So, is the government the only organization that is capable of hiring competent people? Not likely.

Maybe government feels they need to be involved for security purposes. Security is currently a big issue, but it seems to me that security is a good just like any other good. The “market” can determine the amount of security to be supplied. If an airport supplies less security than is demanded the cost would be too low and people could get hurt because harmful people could get onto airplanes. People may then be too afraid to fly out of that specific airport. If too much security is supplied and it costs people more than they are willing to spend and fewer people will use the airport. Therefore, I believe equilibrium can be found for security without the interference of the government.

So, I think the real reason local governments own airports is because they are profitable. Special interest groups (like the airlines or local businesses) are able to gather enough support in a city to get an airport approved and once it’s built the government is unwilling to give it up because it brings in a lot of revenue. Not only do they get the money from the products and services they sell, but they also get taxpayer money.

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