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Coal Rates and Revenue Adequacy in a Quasi-Regulated Rail Industry

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  • Ann F. Friedlaender

Abstract

This article considers whether equitable rates to captive coal shippers are compatible with competitive rates of return in the rail industry. Using the results of a translog cost function based on panel data of Class I railroads for 1974-1986, I show that returns to scale are sufficiently large to cause coal rates to rise to socially unacceptable levels if coal shippers have to bear the entire revenue burden. Moreover, even if noncoal traffic makes a contribution to overhead, the revenue burden on coal traffic is still substantial and would require increases in coal rates that are probably neither politically nor economically feasible.

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  • Ann F. Friedlaender, 1992. "Coal Rates and Revenue Adequacy in a Quasi-Regulated Rail Industry," RAND Journal of Economics, The RAND Corporation, vol. 23(3), pages 376-394, Autumn.
  • Handle: RePEc:rje:randje:v:23:y:1992:i:autumn:p:376-394
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    Cited by:

    1. McCullough, Gerard J., 2015. "Constrained Market Pricing and Revenue Adequacy: Regulatory Implications for Shippers and Class I U.S. Freight Railroads," Staff Papers 207766, University of Minnesota, Department of Applied Economics.
    2. 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.
    3. Ivaldi, Marc & McCullough, Gerard, 2007. "Railroad Pricing and Revenue-to-Cost Margins in the Post-Staggers Era," Research in Transportation Economics, Elsevier, vol. 20(1), pages 153-178, January.
    4. Coublucq, Daniel, 2013. "Econometric analysis of productivity with measurement error: Empirical application to the US Railroad industry," DICE Discussion Papers 95, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    5. Wilson, Wesley W. & Wilson, William W., 2001. "Deregulation, rate incentives, and efficiency in the railroad market," Research in Transportation Economics, Elsevier, vol. 6(1), pages 1-24, January.
    6. Coublucq, Daniel, 2013. "Demand estimation with selection bias: A dynamic game approach with an application to the US railroad industry," DICE Discussion Papers 94, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    7. Wilson, Wesley W. & Bitzan, John, 2003. "Industry Costs and Consolidation: Efficiency Gains and Mergers in the Railroad Industry," MPC Report 231700, North Dakota State University, Upper Great Plains Transportation Institute.
    8. Hughes, Jonathan E., 2011. "The higher price of cleaner fuels: Market power in the rail transport of fuel ethanol," Journal of Environmental Economics and Management, Elsevier, vol. 62(2), pages 123-139, September.
    9. Bitzan, John, 2000. "Railroad Cost Conditions: Implications for Policy," UGPTI Department Publication 231804, North Dakota State University, Upper Great Plains Transportation Institute.

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