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Estimating the marginal cost of railway track renewals using corner solution models

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  • Andersson, Mats
  • Smith, Andrew
  • Wikberg, Åsa
  • Wheat, Phill
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    Abstract

    Economic theory advocates marginal cost pricing for efficient utilisation of transport infrastructure. A growing body of literature has emerged on the issue of rail marginal infrastructure wear and tear costs, but the majority of the work is focused on costs for infrastructure maintenance. Railway track renewals are a substantial part of an infrastructure manager’s budget, but in disaggregated statistical analyses they cause problems for traditional regression models since there is a piling up of values of the dependent variable at zero. Previous econometric work has sought to circumvent the problem by aggregation in some way. In this paper we instead apply corner solution models to disaggregate (track-section) data, including the zero observations. We derive track renewal cost elasticities with respect to traffic volumes and in turn marginal renewal costs using Swedish railway renewal data over the period 1999–2009. This paper is the first attempt in the literature to apply corner solution models, and in particular the two-part model, to disaggregate renewal cost data in railways. It is also the first paper that we are aware of to report usage elasticities specifically for renewal costs and therefore adds important new evidence to the previous literature where there is a paucity of studies on renewals and considerable uncertainty over the effects of rail traffic on renewal costs. In the Swedish context, we find that the inclusion of marginal track renewal costs in the track access pricing regime, which currently only reflects marginal maintenance costs, would add substantially to the existing track access charge. EU legislation requires that access charges reflect the ‘costs directly incurred as a result of operating the train service’, which should include a marginal renewal cost component. This change would also increase the cost recovery ratio of the Swedish infrastructure manager, thus meeting a policy objective of the national government.

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    Bibliographic Info

    Article provided by Elsevier in its journal Transportation Research Part A: Policy and Practice.

    Volume (Year): 46 (2012)
    Issue (Month): 6 ()
    Pages: 954-964

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    Handle: RePEc:eee:transa:v:46:y:2012:i:6:p:954-964

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    Related research

    Keywords: Rail; Marginal cost; Two-part model; Corner solution model; Track renewal costs;

    References

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    1. Chris Nash, 2005. "Rail Infrastructure Charges in Europe," Journal of Transport Economics and Policy, London School of Economics and University of Bath, vol. 39(3), pages 259-278, September.
    2. Robinson, Peter M, 1982. "On the Asymptotic Properties of Estimators of Models Containing Limited Dependent Variables," Econometrica, Econometric Society, vol. 50(1), pages 27-41, January.
    3. Cragg, John G, 1971. "Some Statistical Models for Limited Dependent Variables with Application to the Demand for Durable Goods," Econometrica, Econometric Society, vol. 39(5), pages 829-44, September.
    4. Phill Wheat & Andrew S. J. Smith, 2008. "Assessing the Marginal Infrastructure Maintenance Wear and Tear Costs for Britain's Railway Network," Journal of Transport Economics and Policy, London School of Economics and University of Bath, vol. 42(2), pages 189-224, May.
    5. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
    6. Andersson, Mats & Björklund, Gunilla, 2012. "Marginal railway track renewal costs: a survival data approach," Working papers in Transport Economics 2012:29, CTS - Centre for Transport Studies Stockholm (KTH and VTI).
    7. Leung, S.F. & Yu, S., 1992. "On the Choice Between Sample Selection and Two-Part Models," RCER Working Papers 337, University of Rochester - Center for Economic Research (RCER).
    8. Chris Nash & Tom Sansom, 2001. "Pricing European Transport Systems: Recent Developments and Evidence from Case Studies," Journal of Transport Economics and Policy, London School of Economics and University of Bath, vol. 35(3), pages 363-380, September.
    9. Avery, Robert B & Hansen, Lars Peter & Hotz, V Joseph, 1983. "Multiperiod Probit Models and Orthogonality Condition Estimation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 24(1), pages 21-35, February.
    10. Pinkse, Joris & Slade, Margaret E., 1998. "Contracting in space: An application of spatial statistics to discrete-choice models," Journal of Econometrics, Elsevier, vol. 85(1), pages 125-154, July.
    11. Andersson, Mats, 2007. "Fixed Effects Estimation of Marginal Railway Infrastructure Costs in Sweden," Working Papers 2007:11, Swedish National Road & Transport Research Institute (VTI).
    12. G. S. Maddala, 1987. "Limited Dependent Variable Models Using Panel Data," Journal of Human Resources, University of Wisconsin Press, vol. 22(3), pages 307-338.
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