Abstract The implementation of an environmental market-based measure on U.S. aviation industry is studied. Under this policy, each airline pays a carbon fee for the carbon dioxide emissions it generates. The impact on ticket prices and corresponding market shares is investigated via the joint estimation of an air travel demand model and an airlines' behavior model. In the demand model, aggregate air traffic data is used to determine the marginal effects of flight attributes that are specific to itinerary, airline and airport on market share. The airline's behavior model incorporates the carbon fee in the airline marginal cost. After the implementation of the carbon policy, the increased cost forces airlines to adjust ticket prices in order to maximize profits. The results obtained by the proposed model indicate a moderate price increase which strongly depends on the per tonne carbon price. Air travel demand falls from 2.4% to 21% depending on the carbon price level.
Highlights The effects of carbon fees on ticket prices and passengers' behavior are explored. An empirical demand and supply model for air travel is jointly estimated. Endogeneity and nonlinearity are addressed by the Generalized Method of Moments. The carbon fee in U.S. causes moderate changes on ticket prices and market shares.
The impact of carbon emission fees on passenger demand and air fares: A game theoretic approach
Journal of Air Transport Management ; 55 ; 41-51
2016-04-14
11 pages
Aufsatz (Zeitschrift)
Elektronische Ressource
Englisch
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