Introduction
Despite dramatic reductions over the years in the noise produced by individual aircraft, airport
noise remains a critical public policy issue today. Moreover, given the expected increases
in airline traffic and airport operations over the next decades, the noise issue will continue to
be a source of dissension. The nature of the problem is evident in the ongoing controversy
surrounding the planned expansion and reorientation of Chicago’s O’Hare airport. While the
expansion requires demolition of several hundred properties, it also reorients the airport’s flight
paths, so that a new set of households will be exposed to noise (see McMillen (2004)). Both of
these anticipated effects have led to vociferous opposition to the expansion from nearby residents,
who have attempted to block the plan in court, despite its recent approval by the Federal
Aviation Administration (FAA). Similarly, in Orange County, California, concerns about noise
exposure blocked the construction of a new international airport on a decommissioned military
airbase, even with a shortage of airport capacity in the region (Kranser (2002)). At nearby
John Wayne Airport, departing flights must practice a steep, high-power climb maneuver to
quickly gain altitude before passing over the high-income community of Newport Beach, and
noise concerns in that community continue to limit daily flight volume at the airport.1
The dramatic gains in aircraft “quietness” over the jet age, which have ironically accompanied
ongoing noise concerns, are illustrated by comparing noise from a recent-vintage Boeing
737-700 and a 1967-vintage 727-200. The newer aircraft produces only one-third as much perceived
takeoff noise as its predecessor, despite similar passenger capacities. Because of such
gains in quietness, the number of U.S. residents exposed to significant aircraft noise fell by a
factor of 16 between 1975 and 2000 despite a more than three-fold increase in airline traffic
over the period. However, even with such gains in noise abatement, Figure 1 shows sharply
1
growing trends in various airport noise limits, such as operational curfews, noise quotas, and
noise surcharges, in the U.S. Such measures are even more widespread in Europe, as discussed
by Girvin (2000c).
Noise restrictions are likely to have important impacts on airline service quality and airfares.
Service quality may fall as various operational limits restrict flight frequency, and the expense
of making aircraft quieter, which raises their purchase price and operating cost, may be passed
on in higher airfares. Despite these possible linkages, the airline economics literature contains
no comprehensive analysis of the effect of noise regulation on airline service quality and fares.2
Because of this absence, no proper analysis of optimal noise regulations, which maximize social
welfare taking into account impacts on airlines and their passengers as well as noise victims,
has been possible. The purpose of this paper is to provide the missing analysis through the
use of a highly stylized, but suggestive, theoretical model.
The analysis draws on the scheduling model of Brueckner (2004), where higher flight
frequency benefits passengers by reducing “schedule delay” (allowing departures at moreconvenient
times) while generating higher total noise. Noise per aircraft, denoted n, can
be reduced at a cost, which rises with aircraft size given that quieting a larger plane is more
expensive. The airline is viewed as choosing both n and aircraft size, along with flight frequency
and fares, to maximize profit subject to noise regulations. The manufacturer responds
to the resulting demand for aircraft quietness in its design decisions.
The analysis considers two different regulatory regimes involving explicit noise constraints,
along with an alternative regime where airlines pay noise taxes. The first type of noise constraint
imposes a direct limit on noise per aircraft, with the constraint written as n ≤ n, where
n is the limit. Note that, under this constraint, n is removed as a choice variable for the airline.
The n limit is analogous to the FAA noise certification standard, which governs quietness levels
for new aircraft while also requiring retrofitting of older, noisier planes.3
The second type of constraint is a cumulative noise limit at an airport, which is written
nf ≤ L, where f is flight frequency (the number of flights) and L is total allowed noise for
each airline. Note that an airline has flexibility in meeting a cumulative limit because total
noise depends on both n and flight frequency. This type of constraint, among other noise
IntroductionDespite dramatic reductions over the years in the noise produced by individual aircraft, airportnoise remains a critical public policy issue today. Moreover, given the expected increasesin airline traffic and airport operations over the next decades, the noise issue will continue tobe a source of dissension. The nature of the problem is evident in the ongoing controversysurrounding the planned expansion and reorientation of Chicago’s O’Hare airport. While theexpansion requires demolition of several hundred properties, it also reorients the airport’s flightpaths, so that a new set of households will be exposed to noise (see McMillen (2004)). Both ofthese anticipated effects have led to vociferous opposition to the expansion from nearby residents,who have attempted to block the plan in court, despite its recent approval by the FederalAviation Administration (FAA). Similarly, in Orange County, California, concerns about noiseexposure blocked the construction of a new international airport on a decommissioned militaryairbase, even with a shortage of airport capacity in the region (Kranser (2002)). At nearbyJohn Wayne Airport, departing flights must practice a steep, high-power climb maneuver toquickly gain altitude before passing over the high-income community of Newport Beach, andnoise concerns in that community continue to limit daily flight volume at the airport.1The dramatic gains in aircraft “quietness” over the jet age, which have ironically accompaniedongoing noise concerns, are illustrated by comparing noise from a recent-vintage Boeing737-700 and a 1967-vintage 727-200. The newer aircraft produces only one-third as much perceivedtakeoff noise as its predecessor, despite similar passenger capacities. Because of suchgains in quietness, the number of U.S. residents exposed to significant aircraft noise fell by afactor of 16 between 1975 and 2000 despite a more than three-fold increase in airline trafficover the period. However, even with such gains in noise abatement, Figure 1 shows sharply1growing trends in various airport noise limits, such as operational curfews, noise quotas, andnoise surcharges, in the U.S. Such measures are even more widespread in Europe, as discussedby Girvin (2000c).Noise restrictions are likely to have important impacts on airline service quality and airfares.Service quality may fall as various operational limits restrict flight frequency, and the expenseof making aircraft quieter, which raises their purchase price and operating cost, may be passedon in higher airfares. Despite these possible linkages, the airline economics literature containsno comprehensive analysis of the effect of noise regulation on airline service quality and fares.2Because of this absence, no proper analysis of optimal noise regulations, which maximize socialwelfare taking into account impacts on airlines and their passengers as well as noise victims,
has been possible. The purpose of this paper is to provide the missing analysis through the
use of a highly stylized, but suggestive, theoretical model.
The analysis draws on the scheduling model of Brueckner (2004), where higher flight
frequency benefits passengers by reducing “schedule delay” (allowing departures at moreconvenient
times) while generating higher total noise. Noise per aircraft, denoted n, can
be reduced at a cost, which rises with aircraft size given that quieting a larger plane is more
expensive. The airline is viewed as choosing both n and aircraft size, along with flight frequency
and fares, to maximize profit subject to noise regulations. The manufacturer responds
to the resulting demand for aircraft quietness in its design decisions.
The analysis considers two different regulatory regimes involving explicit noise constraints,
along with an alternative regime where airlines pay noise taxes. The first type of noise constraint
imposes a direct limit on noise per aircraft, with the constraint written as n ≤ n, where
n is the limit. Note that, under this constraint, n is removed as a choice variable for the airline.
The n limit is analogous to the FAA noise certification standard, which governs quietness levels
for new aircraft while also requiring retrofitting of older, noisier planes.3
The second type of constraint is a cumulative noise limit at an airport, which is written
nf ≤ L, where f is flight frequency (the number of flights) and L is total allowed noise for
each airline. Note that an airline has flexibility in meeting a cumulative limit because total
noise depends on both n and flight frequency. This type of constraint, among other noise
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