Airport charges and cost recovery: the long-run view

This paper shows that when the policy of financial break-even is implemente d, "strict" financial break-even on an annual, or even short-run, basis may not be socially desirable. To maximize social welfare, airports should be allowed to take losses, or make profits, at different times while achieving break-even only in the long run. In particular, with economics growing ove r time, socially optimal pricing for a new airport can involve deficit in i ts early years and surplus in its later years. Over its entire life span, h owever, the airport can still achieve cost recovery. (C) 2001 Elsevier Scie nce Ltd. All rights reserved.