May 25, 2010

Congestion Management Rule for LaGuardia Airport

Proposed Rule
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Additional details
Agency
Department of Transportation
Regulatory Identification Number
2120-AI70
Agency Name
Department of Transportation
Rule Publication Date
04/16/2008

RULE SUMMARY

DOT proposes to permanently cap flight operations at LaGuardia and auction off a limited number of landing slots at LaGuardia annually.

METHODOLOGY

There are twelve criteria within our evaluation within three broad categories: Openness, Analysis and Use. For each criterion, the evaluators assign a score ranging from 0 (no useful content) to 5 (comprehensive analysis with potential best practices). Thus, each analysis has the opportunity to earn between 0 and 60 points.

Criterion Score

Openness

1. How easily were the RIA , the proposed rule, and any supplementary materials found online?
The RIA is in the NPRM, but the NPRM does not appear to be available via intuitive links or searches of the DOT website, though the 2009 rescission notice does turn up. It is available on regulations.gov via a RIN or keyword search.
3/5
2. How verifiable are the data used in the analysis?
Most data are sourced. Some are from internal databases or previous RIA. Instructions to obtain some data are not provided. Confidential data is explained and verified in most cases (e.g. Exhibit 9 on page 41).
3/5
3. How verifiable are the models and assumptions used in the analysis?
Certain models based on verifiable scholarly information (50–51), while other models seem to be assumed or created by FAA with no scholarly source available (47). Much could be verified, but in some cases it would require going back to the original RIA.
3/5
4. Was the analysis comprehensible to an informed layperson?
Most of the main text of the RIA is quite understandable, because more complicated theory and calculations are presented in an appendix. While dense at times, the analysis does a good job of explaining key economic concepts and relying little on jargon. Certain models and discussions may be particularly challenging to a layperson, however.
4/5

Analysis

5. How well does the analysis identify the desired outcomes and demonstrate that the regulation will achieve them?
3/5
Does the analysis clearly identify ultimate outcomes that affect citizens’ quality of life?
Yes; reduced flight delay and increased consumer/producer welfare due to more efficient reallocation of slots.
4/5
Does the analysis identify how these outcomes are to be measured?
The analysis measures delay and monetizes both outcomes. The RIA discusses delay costs in monetary value as a function of factor such as lost consumer surplus, lost producer surplus, etc.
5/5
Does the analysis provide a coherent and testable theory showing how the regulation will produce the desired outcomes?
The cap reduces delay by reducing flight operations. Auctions allocate slots to airlines that value them most highly. The RIA doesn't address how reallocation of slots will reduce congestion and peak delay times.
4/5
Does the analysis present credible empirical support for the theory?
Statistics show how flight operations and delays varied when cap was lifted. Auction calculations suggest that some reallocation is plausible.
3/5
Does the analysis adequately assess uncertainty about the outcomes?
The RIA is dealing with very uncertain concepts here—how airlines operating in a complex environment will respond to the rulemaking. All assumptions are fixed and there is no sort of sensitivity analysis. Outcome calculations are not varied to reflect uncertainty. However, the analysis forthrightly states that we cannot predict how many slots will change hands in auctions, and so the analysis assesses whether the benefits of minimal reallocation would justify the costs of setting up auctions. Analysis of auctions takes a very conservative approach due to acknowledged uncertainty.
1/5
6. How well does the analysis identify and demonstrate the existence of a market failure or other systemic problem the regulation is supposed to solve?
3/5
Does the analysis identify a market failure or other systemic problem?
A carrier can impose costs on other carriers and their customers by over-scheduling flights that impose delays on other carriers. The RIA also mentions that the existing secondary market for slots might not be robust because of unclear property rights. The RIA notes in several places that delays at LaGuardia cause delays at other airports, though the externality involved here is not elaborated.
4/5
Does the analysis outline a coherent and testable theory that explains why the problem (associated with the outcome above) is systemic rather than anecdotal?
See above. The only thing lacking is discussion of theories suggesting that larger airlines might internalize the costs of delay because their scheduling decisions also impose delays on their own flights.
4/5
Does the analysis present credible empirical support for the theory?
The only evidence is anecdotal evidence of congestion at New York's airports during the summer of 2007. The ideal empirical support would demonstrate that the social costs of airlines' additional flights exceed the social benefits in the absence of a cap. At one point, the analysis claims that operations beyond current levels create more social costs than benefits, but does not really tie this to the externality point.
3/5
Does the analysis adequately assess uncertainty about the existence or size of the problem?
The analysis does not explicitly incorporate uncertainty about the market failure.
0/5
7. How well does the analysis assess the effectiveness of alternative approaches?
4/5
Does the analysis enumerate other alternatives to address the problem?
At least four options are considered: No caps, caps, and caps plus auction of two different amounts of slots. RIA indicates a 2006 proposal was an additional option had been considered but is now withdrawn.
5/5
Is the range of alternatives considered narrow (e.g., some exemptions to a regulation) or broad (e.g., performance-based regulation vs. command and control, market mechanisms, nonbinding guidance, information disclosure, addressing any government failures that caused the original problem)?
Alternatives cover a decent range: status quo, caps, or caps plus auctions.
4/5
Does the analysis evaluate how alternative approaches would affect the amount of the outcome achieved?
This was calculated for all four options, though the auction figures are intentionally very conservative.
5/5
Does the analysis adequately address the baseline? That is, what the state of the world is likely to be in the absence of federal intervention not just now but in the future?
The baseline is calculated using requests for additional operations filed by airlines when slot restrictions were lifted. This is conservative in that it does not account for any future growth.
3/5
8. How well does the analysis assess costs and benefits?
3/5
Does the analysis identify and quantify incremental costs of all alternatives considered?
There is no mention of specific savings from fewer delays (e.g. fuel costs, labor costs, etc.); instead the RIA aggregates delay costs. Also, there is no discussion of the burdens on airlines from buying the slots.
3/5
Does the analysis identify all expenditures likely to arise as a result of the regulation?
While delay costs are broken down into various categories, the resolution of some of these (e.g. downstream costs) are not good enough to see how thorough the assumptions are.
3/5
Does the analysis identify how the regulation would likely affect the prices of goods and services?
There is some discussion of the drop in the price of air travel, but this discussion is somewhat speculative.
3/5
Does the analysis examine costs that stem from changes in human behavior as consumers and producers respond to the regulation?
The analysis assesses changes in flight operations, delays, and social costs.
4/5
If costs are uncertain, does the analysis present a range of estimates and/or perform a sensitivity analysis?
The analysis presents a range of costs for auctions, but a single value for caps.
2/5
Does the analysis identify the alternative that maximizes net benefits?
Caps have net benefits compared to no caps, auctions have net benefits over and above net benefits of caps, and one auction proposal has higher net benefits than the other.
4/5
Does the analysis identify the cost-effectiveness of each alternative considered?
The analysis does not address this topic, however, it could be calculated from data in the RIA.
1/5
Does the analysis identify all parties who would bear costs and assess the incidence of costs?
It contains some discussion of how airlines might bear costs and transfers.
4/5
Does the analysis identify all parties who would receive benefits and assess the incidence of benefits?
Benefits are less clear, as "producer surplus" and "consumer surplus" are not broken down to specific parties.
2/5

Use

9. Does the proposed rule or the RIA present evidence that the agency used the analysis?
FAA notes that the auction proposals by themselves will reduce delay by a very small amount, which comes out of the regulatory analysis. This provides a justification for caps. In general, the analysis sounds mostly like support for the two options DOT proposes, rather than something that helped DOT make a decision about the options. Most of the reasons given for decisions in the text reference parties' comments, not the findings of the regulatory analysis.
3/5
10. Did the agency maximize net benefits or explain why it chose another alternative?
DOT seeks comment on two auction options, both of which would produce net benefits exceeding those that stem from merely capping operations.
4/5
11. Does the proposed rule establish measures and goals that can be used to track the regulation's results in the future?
The preamble explicitly states that the rule will terminate in 2019 to allow for re-evaluation. Topics for reevaluation include whether a cap is still needed, whether changes in allocation are needed, and the distribution of slots and effects on entry. There are measures in the rule to track future performance, such as a change in demand for air travel and upgauging. There is no explicit discussion of future measurement.
3/5
12. Did the agency indicate what data it will use to assess the regulation's performance in the future and establish provisions for doing so?
The language implies that DOT will examine delays and competition. Effects of regulation on delays and on efficiency of slot allocation could be measured ex post using methods in the analysis. DOT does not specifically say how it would measure effects on competition.
3/5
Total 39 / 60