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An empirical evaluation of the effects of European public policies on island airfares

Xavier Fageda, Juan Jiménez González () and Jorge Valido

Transportation Research Part A: Policy and Practice, 2017, vol. 106, issue C, 288-299

Abstract: In this paper we estimate a pricing equation using data, at route and airline levels, for five European countries where a significant proportion of the territory is located on islands; France, Greece, Italy, Portugal and Spain. By using two complementary empirical strategies, instrumental variables and matching procedures, we find that the imposition of Public Service Obligations does not seem to be effective in reducing prices. Furthermore, we find that prices are higher on routes where only island residents enjoy subsidies, but not on routes where subsidies do not discriminate between residents and non-residents. Finally, prices seem to be higher on routes with flat rates in contrast to routes where subsidies to residents are made through fare discounts. Overall, the results of our analysis suggest the need to change policies in order to support air services to islands and to avoid distortions in the market fares offered by airlines.

Keywords: Airline; Subsidies; Resident passenger (search for similar items in EconPapers)
JEL-codes: H25 L13 L93 (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1016/j.tra.2017.09.018

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