Some Issues in Benefit-Cost Analysis for Airport Development

Abstract

A number of recent Executive Office mandates have outlined the need for U.S. government agencies, including the Federal Aviation Administration, to conduct benefit-cost analyses for policy decisions. Policy decisions concerning local airspace system infrastructure could result in national airspace benefits. If the benefit-cost analyses are to be conducted properly, there is a need to account for these benefits. A method for conducting simulations is developed within a benefit-cost framework to examine the social welfare implications when localities act unilaterally without internalizing potential national airspace system benefits. Rates of return, compensating variation, and equivalent variation are simulated for a hypothetical economy, and social welfare as measured by these techniques improves when localities account for national airspace system benefits. The equivalent variation method enables policy makers to distinguish some equity implications from efficiency improvements that may occur simultaneously when localities move to account for national airspace system benefits in their aviation infrastructure decisions. Other issues in conducting benefit cost analyses for aviation infrastructure projects are discussed, and suggestions concerning how to attain efficient outcomes in compliance with institutional guidelines are made.