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

Listed author(s):
  • Bitzan, John D
  • Keeler, Theodore E
Registered author(s):

    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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    File URL: http://dx.doi.org/10.1086/508308
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    Article provided by University of Chicago Press in its journal Journal of Law and Economics.

    Volume (Year): 50 (2007)
    Issue (Month): 1 (February)
    Pages: 157-179

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    Handle: RePEc:ucp:jlawec:y:2007:v:50:i:1:p:157-79
    Contact details of provider: Web page: http://www.journals.uchicago.edu/JLE/

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    1. Robert G. Harris, 1977. "Economies of Traffic Density in the Rail Freight Industry," Bell Journal of Economics, The RAND Corporation, vol. 8(2), pages 556-564, Autumn.
    2. Ellig, Jerry, 2002. "Railroad Deregulation and Consumer Welfare," Journal of Regulatory Economics, Springer, vol. 21(2), pages 143-167, March.
    3. John D. Bitzan & Theodore E. Keeler, 2003. "Productivity Growth and Some of Its Determinants in the Deregulated U.S. Railroad Industry," Southern Economic Journal, Southern Economic Association, vol. 70(2), pages 232-253, October.
    4. Grimm, Curtis M & Winston, Clifford & Evans, Carol A, 1992. "Foreclosure of Railroad Markets: A Test of Chicago Leverage Theory," Journal of Law and Economics, University of Chicago Press, vol. 35(2), pages 295-310, October.
    5. Harris, Robert G & Winston, Clifford M, 1983. "Potential Benefits of Rail Mergers: An Econometric Analysis of Network Effects on Service Quality," The Review of Economics and Statistics, MIT Press, vol. 65(1), pages 32-40, February.
    6. Richard C. Levin, 1981. "Regulation, Barriers to Exit, and the Investment Behavior of Railroads," NBER Chapters, in: Studies in Public Regulation, pages 181-230 National Bureau of Economic Research, Inc.
    7. Harbeson, Robert W, 1969. "Toward Better Resource Allocation in Transport," Journal of Law and Economics, University of Chicago Press, vol. 12(2), pages 321-338, October.
    8. Zvi Griliches, 1972. "Cost Allocation in Railroad Regulation," Bell Journal of Economics, The RAND Corporation, vol. 3(1), pages 26-41, Spring.
    9. Keeler, Theodore E, 1974. "Railroad Costs, Returns to Scale, and Excess Capacity," The Review of Economics and Statistics, MIT Press, vol. 56(2), pages 201-208, May.
    10. Christensen, Laurits R & Greene, William H, 1976. "Economies of Scale in U.S. Electric Power Generation," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages 655-676, August.
    11. Braeutigam, Ronald R & Daughety, Andrew F & Turnquist, Mark A, 1984. "A Firm Specific Analysis of Economies of Density in the U.S. Railroad Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 33(1), pages 3-20, September.
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