Institutions for Flying: How States Built a Market in International Aviation Services

Abstract

In the aftermath of World War II, states created a complex set of bilateral and multilateral institutions to govern international aviation markets. National governments concluded bilateral agreements to regulate airport entry and capacity and delegated to the airlines, through the International Air Transport Association (IATA), the authority to set fares and the terms of service in international markets. The resulting mixture of public and private institutions produced a de facto cartel that lasted for more than thirty years. Consistent with the Rational Design framework put forth by Barbara Koremenos, Charles Lipson, and Duncan Snidal, I argue that the institutions states created reflect the bargaining and incentive problems generated by international aviation markets. This case provides support for four of the Rational Design conjectures and slightly contradicts three others.