Productivity? of US Airlines After Deregulation

In measuring productivity in the presence of undesirable outputs, traditional growth accounting and index number approaches face the problem that prices of the undesirable outputs typically do not exist since such outputs are generally not marketed. In this paper we employ an alternative measure of total factor productivity based on a generalization of the Shephard distance functions, namely what we call directional output distance functions. Not only are these distance functions generally computable in the presence of undesirable outputs, but they also allow us to `credit' ̄rms for reductions in undesirable outputs, while crediting them for increases in good outputs. The Luenberger productivity indicator is constructed from directional distance functions, but in contrast to the Malmquist index, it has an additive structure. We analyze a sample of airline ̄rms most recently examined by Alam and Sickles (2000) and extend it to include an index of circuity as one of our measures of an undesirable output of airline travel. An addiitonal measure of an undesireable output of airline travel is timeliness and is measured by FAA data on percent of °ights that arrived on time. The two 'good' outputs are scheduled and nonscheduled revenue passenger miles. We ̄nd that accounting for characteristics such as circuity and percentage of °ights arriving on time does a®ect productivity. Our ̄ndings con ̄rm anecdotal accounts of a decline in airline service productivity since deregulation, yielding in general lower rates of productivity growth in our sample when bads such as indirect routing and delays are explicitly introduced into the technology.