Monday, July 19, 2010

D.C. Circuit Upholds Congestion Pricing

Last week, the D.C. Circuit Court of Appeals upheld the Department of Transportation's 2008 Policy Regarding Airport Rates and Charges, 78 Fed. Reg. 3310.  See Air Transport Association v. U.S. Department of Transportation, Case No. 08-1293 (D.C. Cir. 2010) (available here).  Writing for a unanimous court, Judge Douglas Ginsburg denied the ATA's petition for review on the grounds, commenting that the DOT's "effort to relieve congestion pricing [through the new pricing policy] . . . should be welcome on its merits, not spurned for its novelty."  Id. at 27. 

Without commenting on  Judge Ginsburg's legal analysis, it is worth taking note of his curious discussion of slots as an alternative means to pricing for reducing airport congestion.  See id. 5-6.  Judge Ginsburg writes:

There are two ways in which an airport might increase its landing fee to the market-clearing level — that is, to the price just high enough to eliminate the excess demand and hence the queue at peak times. The first is to sell at auction the right to land an aircraft at a particular airport at a particular time; that right is called a “landing slot.” In an auction an airport would first determine the number of landings it can accommodate during a given period of time, such as an hour, and then allow airlines to bid for each slot in an auction; the winning bid would determine the price of the landing slot. The alternative is “congestion pricing,” which entails the airport itself increasing the price (landing fee) until it elicits demand for only as many landings as it can accommodate, thereby eliminating queuing and delay. Both a slot auction and congestion pricing will converge upon the same price and the same quantity.

He then goes on to state that while neither system "is preferable to the other," commentators "have advocated slot auctions rather than congestion pricing because an airport operator knows how many landings the airport can safely accommodate per hour but can only learn by trial and error what fee will yield that many landings."  Id. at 5 (citation omitted).  This is correct.  However, Judge Ginsburg's next step is puzzling.  At the end of a string cite in support of the latter proposition, he adds: "But see Michael E. Levine, Landing Fees and the Airport Congestion Problem, 12 J.L. & Econ. 79 (1969) (proposing a system of congestion pricing)." 

While there is no doubt that Professor Levine wrote such an article in 1969, it is also true that Levine published a piece in support of slot auctions which was highly critical of congestion pricing in 2009.  See Airport Congestion: When Theory Meets Reality, 26 Yale J. on Reg. 37 (2009).  All of the articles Judge Ginsburg cites in his discussion of slots are 30-40 years old.  Why pass silently over this and other recent scholarly treatments of the airport congestion problem?  See, e.g., Jan K. Brueckner, Price vs. Quantity-Based Approaches to Airport Congestion Management, 93 J. Pub. Econ. 681 (2009).  Why not take account of the fact airports operate as monopolies and have strong incentives to extract as much rent from airlines (and thus consumers) as possible? 

Admittedly, even if the D.C. Circuit's opinion contained a more thorough and accurate discussion of slots, it would not have changed the holding.  Perhaps, however, it would have forced the court to deal with the reality that congestion pricing is a suboptimal mechanism for reducing airport congestion while taking account of the latitude for abuse (i.e., rent extraction) the pricing option offers.

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