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Three Principles for Optimal Pricing of Trackage Rights

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  • Kenneth D. Boyer

    (Michigan State University)

Abstract

Borrowing from the literature on optimal road pricing, this paper introduces three efficiency-based principles for setting track access fees. The fundamental principle is that track fees should be set as close as possible to optimal congestion tolls on a track segment. Since this procedure gives an incentive to keep capacity inefficiently low in order to increase congestion tolls, the second principle is that track fees be devoted to paying for track maintenance, the opportunity cost of land, and the amortization of plant and equipment installed on the track. The third principle is that track fees should be set by traffic and cost conditions on a line and should not vary with the identity of the user whose freight is hauled on the line; this third principle is designed to encourage efficient location and mode choice. The combination of these three principles has the promise of increased willingness to use rail logistics systems, the installation of an appropriate level of capacity on each line, and optimal routing and traffic levels throughout the rail system.

Suggested Citation

  • Kenneth D. Boyer, 2016. "Three Principles for Optimal Pricing of Trackage Rights," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 49(2), pages 347-369, September.
    • Handle: RePEc:kap:revind:v:49:y:2016:i:2:d:10.1007_s11151-016-9518-z
    DOI: 10.1007/s11151-016-9518-z
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    References listed on IDEAS

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