General Purpose or Special District Governance? Technical Efficiency versus Rent Dissipation in Airport Finances

Abstract

This article compares the behavior of special district governments to that of general purpose governments, using as an empirical example the performance of US airports. The authors estimate a modified McFadden symmetric generalized cost function, specified to distinguish technical efficiency and allocative efficiency of airports governed by each institutional form. Using a unique data set on US airports, the authors find that special district governments have technical efficiency that is over 40 percent higher than airports operated by general purpose governments. This advantage, however, is almost entirely dissipated through overpayments to labor and for materials, so that the resulting cost advantage of special district airports is less than 5 percent. The authors interpret these results to suggest that the feedback process between residents and the government institution is centrally important.