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May/June 2003, 
Vol. 85, No. 3
Posted 2003-05-01

Congestion at Airports: The Economics of Airport Expansions

The authors first discuss how airport congestion arises and how it can be dealt with. Because services provided by one airport are related to the services provided by many airports, delays at one airport have adverse effects on the movement of passengers and freight at other airports. Thus, the expansion of one airport can assist the movement of passengers and freight at other airports. This interdependence provides an economic justification for a decisionmaking authority above the level of individual airports, such as a governmental body, to be involved in the approval as well as the financing of expansions. However, when both congestion and network externalities are present, the appropriate government actions may be to levy a tax, to provide a subsidy, or possibly to refrain from any intervention. To justify a specific airport expansion, its benefits must exceed its costs. The authors examine how the benefits and costs of expansions are measured. They use the expansion of Lambert–St. Louis International Airport to illustrate many of the key points.