Airport Noise and Congestion: A Peak Load Pricing Solution

Abstract

This paper derives a systematic method of determining user fees which maximize social welfare within the airport's capacity and noise constraints. Once such a fee structure is developed it then becomes possible to consider the second problem of whether the peak and off-peak demand for the use of the airport justifies additional expenditures on increased capacity if the capacity constraint is indeed the relevant consideration. An efficient fee system may, on the other hand, reveal that the noise condition produced by airport operations is the controlling constraint and that until this problem is resolved further additions to capacity are unjustifiable. A mathematical derivation of an optimal user fee policy is presented in the first section. These fees allocation capacity efficiently between the two types of users for a given time period. By solving this allocation problem we are then able to estimate for that period the shadow price of additional capacity. This shadow price is the amount users in that time period are willing to pay in order to expand current facilities. The shadow prices for capacity generated for each period of time are then employed to determine the optimal capacity. If the noise constraint is relevant in a particular time period shadow prices are generated which indicate the amount users are willing to pay in order to reduce the noise levels of current operations or community objections to them. In the second section these mathematical results are used to develop a graphical procedure which can be applied to calculate the economically efficient fees and the shadow prices for the capacity and noise constraints.