The economics of franchise contracts and airport policy

In this paper, we apply insights from the economics of franchise contracts to the governance of airports and the evolution of airport policy in Canada. Some aspects of the devolution of airports in Canada could be consistent with a ‘public franchise’ approach to airport policy. An examination of Canada's National Airport Policy and subsequent policy decisions, however, suggests that the government may have made the right decision for the wrong reasons. Applying the franchise perspective to European airport policy, recent decisions by the European Union regarding exclusive agreements between publicly owned airports and low-cost carriers suggest a departure from the incentive-compatibility requirements of franchise contracts that would promote market-based efficiency.