A simple analysis of the rent seeking of airlines, airports and politicians

Economic rent seeking is the raison d'(e) over cap tre of a commercial undertaking and acts as the manipulator of Adam Smith's 'invisible hand'. The retention of economic rent, however, can cause undesirable distortions, especially if it persists over a long period. Public policy, therefore, often seeks to tempt business with the promise of rent, allow business an occasional nibble, but at the same time create structures whereby business cannot swim away with the bait. The discussion here is of how slot allocation procedures have rent seeking implications that affect both the existence of economic rents and the distribution of these rents. The actors in the game are the airlines, airports and politicians (broadly defined to include the executive as well as legislators). The ultimate distribution of rent is essentially a political decision, as is any form of allocation, but its form is influenced by the underlying nature of the market for slots and the way in which market power is spread. (c) 2004 Elsevier Ltd. All rights reserved.