Cost–Benefit Analysis of Investments in Air Traffic Management Infrastructures: A Behavioral Economics Approach

Abstract

An important and challenging question for airport operators is the management of airport capacity and demand. Airport capacity depends on the available infrastructure, external factors, and operating procedures. Investments in Air Traffic Management (ATM) infrastructures mainly affect airside operations and include operational enhancements to improve the efficiency, reliability, and sustainability of airport operations. Therefore, they help increase capacity while limiting the impact on the airport infrastructure itself. By reviewing the neoclassical valuation principles for Cost–Benefit Analysis (CBA), 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 through practical guidelines into the traditional welfare model to achieve a new methodology. We propose a novel CBA behavioral framework for investments in ATM infrastructures 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 model. The case study evaluates the deployment of Automatic Dependent Surveillance–Broadcast (ADS–B) as an investment aimed at improving ATM operational procedures in the airport environment by providing advanced ground surveillance data. This allows airport operators to discover the causes of taxi congestion and safety hotspots on the airport airside. The benefits of ADS–B are related to enhanced flight efficiency, reduced environmental impact, increased airport throughput, and improved operational predictability and flexibility, thus reducing waiting times. At the airport level, reducing the waiting times of aircraft on the ground would lead to a capacity release and a reduction in delays. The results show that, following a traditional CBA, the investment is clearly viable, with a strong economic return. Including behavioral notions allows us to propose a new evaluation framework that complements this conclusion with a model that also considers inconsistencies in time and risk perception. A positive Net Present Value can turn into a negative prospect valuation, if diminishing sensitivity and loss aversion are considered. This explains the reticent behavior of decision makers toward projects that require robust investments in the short-term, yet are slow to generate positive cash flows. Finally, we draw conclusions to inform policy makers about the effects of adopting a behavioral approach when evaluating ATM investments.