Does Institutional Economics Add to Our Understanding of Transportation? Air Transport Policy as an Example

Abstract

New institutional economics (NIE) is a method that includes factors such as governance, transactions costs, social norms, moral hazard, adverse selection, and property rights. This article explores how NIE might be appropriate in the field of transportation. The author uses air transport policy as an illustration of some of the situations where NIE may shed light on the behavior of various organizations that supply or regulate air transportation services. The author first explores the differences between organizations (groups of people) and institutions (the legal rules and informal social norms that govern individual behavior and structure social interactions). The author goes on to discuss the actions of management, the move to deregulate airline markets, paying for air services, mergers and alliances, public to private ownership, environmental concerns, and handling congestion. The author concludes that while there is a strong case to be made for the use of NIE in the economic study of air transportation issues, thus far this approach has made little impact. This may be due to the fact that NIE is still a developing field and there is still a lack of a complete toolkit of analysis.