The joy of flying: Efficient airport PPP contracts. (August 2018)
- Record Type:
- Journal Article
- Title:
- The joy of flying: Efficient airport PPP contracts. (August 2018)
- Main Title:
- The joy of flying: Efficient airport PPP contracts
- Authors:
- Engel, Eduardo
Fischer, Ronald
Galetovic, Alexander - Abstract:
- Highlights: Airport PPPs have become common. Optimal contract for an airport PPP with aeronautical, non-aeronautical revenues. Cases: Exogenous demand and a special case with endogenous demand. Contracts provide optimal incentives to efficient effort. A special case of this contract has been implemented in airports in Chile. Abstract: We derive the optimal concession contract for an airport where the concessionaire's effort impacts either non-aeronautical revenue (shops, restaurants, parking lots and hotels) or aeronautical revenues (passenger and airline fees). Our first model assumes that demand for the infrastructure is exogenous whereas demand for non-aeronautical services depends both on passenger flow and on the concessionaire's effort and diligence. We show that the optimal principal-agent contract separates exogenous and endogenous risks. First, the term of the concession varies inversely with passenger flow, so that the concessionaire bears no exogenous demand risk. Second, the concessionaire bears part or all of non-aeronautical risk, which fosters effort. We also study a model where the concessionaire's effort affects demand for aeronautical services and focus on the case where the contract includes a demand trigger for investment as an incentive. Both optimal contracts can be implemented with a Present-Value-of-Revenue (PVR) auction in which firms bid on the present value of aeronautical revenue and the concession ends when the bid is collected. PVR auctions haveHighlights: Airport PPPs have become common. Optimal contract for an airport PPP with aeronautical, non-aeronautical revenues. Cases: Exogenous demand and a special case with endogenous demand. Contracts provide optimal incentives to efficient effort. A special case of this contract has been implemented in airports in Chile. Abstract: We derive the optimal concession contract for an airport where the concessionaire's effort impacts either non-aeronautical revenue (shops, restaurants, parking lots and hotels) or aeronautical revenues (passenger and airline fees). Our first model assumes that demand for the infrastructure is exogenous whereas demand for non-aeronautical services depends both on passenger flow and on the concessionaire's effort and diligence. We show that the optimal principal-agent contract separates exogenous and endogenous risks. First, the term of the concession varies inversely with passenger flow, so that the concessionaire bears no exogenous demand risk. Second, the concessionaire bears part or all of non-aeronautical risk, which fosters effort. We also study a model where the concessionaire's effort affects demand for aeronautical services and focus on the case where the contract includes a demand trigger for investment as an incentive. Both optimal contracts can be implemented with a Present-Value-of-Revenue (PVR) auction in which firms bid on the present value of aeronautical revenue and the concession ends when the bid is collected. PVR auctions have been used to auction airport PPP contracts in Chile, and demand triggers for investment have been used both in Brazil and Chile. … (more)
- Is Part Of:
- Transportation research. Volume 114(2018)
- Journal:
- Transportation research
- Issue:
- Volume 114(2018)
- Issue Display:
- Volume 114, Issue 2018 (2018)
- Year:
- 2018
- Volume:
- 114
- Issue:
- 2018
- Issue Sort Value:
- 2018-0114-2018-0000
- Page Start:
- 131
- Page End:
- 146
- Publication Date:
- 2018-08
- Subjects:
- Airports -- PPPs -- Non-aeronautical revenues -- Optimal contract
H440 -- R420 -- L51
Transportation -- Research -- Periodicals
Transportation -- Mathematical models -- Periodicals - Journal URLs:
- http://www.elsevier.com/journals ↗
http://www.sciencedirect.com/science/journal/01912615 ↗ - DOI:
- 10.1016/j.trb.2018.05.001 ↗
- Languages:
- English
- ISSNs:
- 0191-2615
- Deposit Type:
- Legaldeposit
- View Content:
- Available online (eLD content is only available in our Reading Rooms) ↗
- Physical Locations:
- British Library DSC - 9026.274610
British Library DSC - BLDSS-3PM
British Library HMNTS - ELD Digital store - Ingest File:
- 12883.xml