# **1. Introduction**

During the last two decades there has been a growing interest in measuring the efficiency and performance of airports. On one hand, the process of introducing private participation in the management and operation of airports and the birth of regulatory agencies in charge of setting tariffs for the sector brought along the need to assess the way in which airports are being operated. On the other hand, with the liberalization of competition among airlines, airports started competing with each other for connecting traffic (to become hub airports) which prompted them to increase their efficiency.

This interest has spurred a growing literature aimed at estimating the efficiency of the airport sector, mainly through the use of data envelopment analysis (DEA) methods. To the best extent of our knowledge, there has not been any study that computes the efficiency and performance of a representative sample of airports in Latin America. This region has implemented a wide variety of private sector participation schemes including concessions of several groups of airports (Mexico), a single concession of a group of airports with more than 90 percent of the air transport market (Argentina), single airport concessions (Chile), and a combination of single and group airport concessions (Peru). Several hypotheses can be provided to explain why airport efficiency in Latin America has not been the subject of academic research but the most likely reason is the lack of publicly available data.

The main objective of this paper is to fill this gap in the literature. We are able to do so using data collected from a questionnaire that was sent, as part of a World Bank study on airports, to the major airport operators in LAC (see Table A1 in the Appendix for a list of airports that responded to the questionnaire). It should be noted that the sample assembled for this study is representative of the air transport sector in the LAC region. Indeed, the airports included in the sample account for more than 80% of total passengers and aircraft movements in the region and for 70% of total air cargo.

The paper first computes a data envelopment analysis (DEA) activity frontier for commercial airports around the world, using the data collected through the questionnaire together with information from airports in Europe, North America and Asia-Pacific taken from the Airport Benchmarking Report elaborated by the Air Transport Research Society (ATRS). These estimations allow us to observe where LAC airports stand relative to the best practices in the sector. The method used also allows us to identify the peers of each airport in Latin America (i.e. airports around the world which are comparable to LAC airports and which operate on the efficiency frontier).

We then proceed to identify factors that drive the observed differences in technical efficiency in the airport sector. In order to do this we estimate a truncated regression model using the efficiency scores of the DEA activity frontier as the dependent variable, and as independent variables several factors that attempt to capture the institutional framework and socioeconomic environment in which airports operate as well as other airport specific characteristics.

Finally, the dataset we use in this paper also allows us to measure Total Factor Productivity Changes (TFPC) for LAC airports over the period 1995-2007. The methodology used to perform these estimations consists on the computation of a Malmquist quantity index of TFPC based on the non-parametric DEA approach.

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