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Marginal railway infrastructure cost estimates in the presence of unobserved effects

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    Abstract

    New railway legislation in Sweden has increased the need for transparent access charges on the Swedish railway network. The purpose of this paper is to estimate cost functions for infrastructure operation, maintenance and renewal in the Swedish national railway network, using unobserved effects models. The estimated cost functions are used to calculate the marginal cost for railway infrastructure wear and tear and give the Swedish National Rail Administration (Banverket) support in designing a marginal cost based pricing scheme in line with Swedish transport policy. A panel of 185 track sections is observed during 1999-2002. Collected data covers infrastructure, traffic and cost data. Despite having a rich set of information, unobserved effects are assumed to exist, which will bias estimates by ordinary least squares (OLS) due to omitted variables. We therefore use random effects specifications to estimate our models. We find evidence of unobserved effects at a track district level for infrastructure operation, maintenance and renewal costs. We estimate the marginal infrastructure operation cost to SEK 0.50 per train kilometre and the marginal maintenance cost to SEK 0.0029 per gross tonne kilometre. Combining maintenance and renewal cost increases the estimate to SEK 0.0065 per gross tonne kilometre. For all models, elasticities and marginal cost estimates are in line with previous work using pooled ordinary least squares (Andersson, In press).

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    Bibliographic Info

    Paper provided by Swedish National Road & Transport Research Institute (VTI) in its series Working Papers with number 2006:6.

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    Length: 31 pages
    Date of creation: 25 Aug 2006
    Date of revision:
    Handle: RePEc:hhs:vtiwps:2006_006

    Note: WP 2007:11 is a substantially revised version of this paper.
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    Postal: VTI, Transport Economics, P.O. Box 6056, SE-171 06 Solna, Sweden
    Phone: +46-13-20 40 00
    Fax: +46-13-14 14 36
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    Web page: http://www.vti.se/tek
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    Related research

    Keywords: Railway; Infrastructure operation; Maintenance; Renewal; Marginal costs; Unobserved effects models;

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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, London School of Economics and University of Bath, vol. 39(3), pages 259-278, September.
    2. Hausman, Jerry A, 1978. "Specification Tests in Econometrics," Econometrica, Econometric Society, Econometric Society, vol. 46(6), pages 1251-71, November.
    3. John Kennedy & Andrew S. J. Smith, 2004. "Assessing the Efficient Cost of Sustaining Britain's Rail Network: Perspectives based on Zonal Comparisons," Journal of Transport Economics and Policy, London School of Economics and University of Bath, London School of Economics and University of Bath, vol. 38(2), pages 157-190, May.
    4. Link, Heike & Nilsson, Jan-Eric, 2005. "Infrastructure," Research in Transportation Economics, Elsevier, Elsevier, vol. 14(1), pages 49-83, January.
    5. Zvi Griliches, 1972. "Cost Allocation in Railroad Regulation," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 3(1), pages 26-41, Spring.
    6. Johansson, Per & Nilsson, Jan-Eric, 2004. "An economic analysis of track maintenance costs," Transport Policy, Elsevier, vol. 11(3), pages 277-286, July.
    7. Kennedy, J. & Smith, A.S.J., 2003. "Assessing the efficient cost of sustaining Britain’s rail network: perspectives based on Zonal comparisons," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 0317, Faculty of Economics, University of Cambridge.
    8. John D. Bitzan, 2003. "Railroad Costs and Competition: The Implications of Introducing Competition to Railroad Networks," Journal of Transport Economics and Policy, London School of Economics and University of Bath, London School of Economics and University of Bath, vol. 37(2), pages 201-225, May.
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