Abstract

We study and compare three different mechanisms for capacity (slot) allocation in a congested airport when airlines have one-dimensional private information: direct allocation of slots, differentiated tolls and slot auctions. With perfect information, direct allocation is a first best policy which can be implemented through Pigouvian taxes or slot auctions; the mechanisms are equivalent in terms of social welfare. With the introduction of asymmetric information this equivalence is lost: direct allocation is always ex-post inefficient and, in some cases, tolls and subsequent quantity delegation is a bet- ter alternative social welfare wise. Auctions may be superior or inferior to tolls. We further show that naïve application of Pigouvian tolls is sub-optimal when imperfect information exists.