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Economies of Density and Regulatory Change in the U.S. Railroad Freight Industry

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  • Bitzan, John D
  • Keeler, Theodore E
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    Abstract

    Two reform acts, the Staggers Railroad Act of 1980 and the Railroad Revitalization and Regulatory Reform Act of 1976, represented big changes in U.S. policy toward railroads. An important welfare gain from these changes predicted by researchers was the efficiency gain from increased densities in rail freight traffic. However, few retrospective studies have analyzed the accuracy of these predictions. The present paper fills this gap by analyzing the effects of regulatory changes on freight traffic density, through simulation of the cost savings from gains in density, using a newly estimated rail cost function, and by comparison of these results with earlier predictions. Our results indicate net benefits of $7-$10 billion per year (as of 2001), stemming from cost savings from increased traffic densities relative to what would have occurred under regulation. These benefits are substantially higher than those predicted by researchers in the 1970s and early 1980s, for reasons explained in the paper.

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    Bibliographic Info

    Article provided by University of Chicago Press in its journal Journal of Law and Economics.

    Volume (Year): 50 (2007)
    Issue (Month): 1 (February)
    Pages: 157-79

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    Handle: RePEc:ucp:jlawec:y:2007:v:50:i:1:p:157-79

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    Web page: http://www.journals.uchicago.edu/JLE/

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    Cited by:
    1. Fumitoshi Mizutani & Shuji Uranishi, 2013. "Does vertical separation reduce cost? An empirical analysis of the rail industry in European and East Asian OECD Countries," Journal of Regulatory Economics, Springer, vol. 43(1), pages 31-59, January.
    2. James MacDonald, 2013. "Railroads and Price Discrimination: The Roles of Competition, Information, and Regulation," Review of Industrial Organization, Springer, vol. 43(1), pages 85-101, August.
    3. John Bitzan & Theodore Keeler, 2014. "The evolution of U.S. rail freight pricing in the post-deregulation era: revenues versus marginal costs for five commodity types," Transportation, Springer, vol. 41(2), pages 305-324, March.
    4. Russell Pittman, 2009. "Railway Mergers and Railway Alliances: Competition Issues and Lessons for Other Network Industries," EAG Discussions Papers 200902, Department of Justice, Antitrust Division.

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