A Behavioral Framework for the Evaluation of Airport Infrastructure Investments

Airport capacity constraints lead to operational congestion and delays, which have become major threats to the aviation industry. Behavioral economics is playing a growing role in policy assessment and posits several cognitive biases and limitations to conventional methods. This study aims to develop a new framework to accommodate behavioral challenges within the traditional Cost-Benefit Analysis structure in the context of airport infrastructure. We consider the problem of capacity expansion at an existing, capacity-constrained airport that is subject to significant delays and growing demand. The paper starts by setting the theoretical background regarding the Cost-Benefit Analysis of airport development projects. By reviewing the neoclassical valuation principles for Cost Benefit Analysis, we find that it does not consider relevant behavioral economic challenges to conventional analysis, particularly: failure of the expected utility hypotheses, dependence of valuations on reference points, and time inconsistency. These challenges are then incorporated into the neoclassic welfare model to reach a new methodology. Therefore, we propose a new Cost Benefit Analysis behavioral framework for airport capacity expansion problems to help policy makers and airport operators when faced with a capacity development decision. This is complemented with a practical example to illustrate and test the applicability of the proposed methodology. With our approach, airport capacity and demand management, particularly the evaluation of airport infrastructure, is complemented with the most influential behavioral concepts in capacity expansion: (i) risk perception/aversion and expected utility deviations, (ii) divergence between willingness to pay and willingness to accept, and (iii) non-exponential time discounting.