Highlights We compare ad valorem and specific subsidies for residents in air transport. A fixed discount per trip is always superior to the ad valorem alternative. The effectiveness of the subsidy depends on the characteristics of the route. The proportion of residents and non-residents’ demand function are key variables. Any evaluation of the effects of such subsidies has to be performed route by route.
Abstract In this paper, we analyze the efficiency of ad valorem and specific subsidies for resident passengers in air transport markets. A fixed discount per trip and route is always superior to the ad valorem alternative. We prove that the effectiveness of the subsidy for resident passengers strongly depends on the particular characteristics of the route, such as the level of competition, the proportion of residents, or the shape of residents’ and non-residents’ demand functions. Thus, any evaluation of the effects of such subsidies has to be performed route by route, taking into account the particular characteristics of the route, market share of residents and non-residents, degree of competition, and the period of time when the operations take place.
Subsidies in air transport markets: The economic consequences of choosing the wrong mechanism
2022-02-26
Aufsatz (Zeitschrift)
Elektronische Ressource
Englisch
Ad valorem subsidy , Specific subsidy , Residents , Market power , Airlines , H59 , L93 , R48
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