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Against the stand-alone-cost test in U.S. freight rail regulation

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  • Russell Pittman

Abstract

The stand-alone-cost test has become an expensive, extensive, and time-consuming part of the regulatory practice of the U.S. Surface Transportation Board in the performance of its statutory duty to protect "captive shippers" from monopoly rail rates. Worse, a close examination of the history of its adoption and application suggests only a very tenuous connection with its claimed intellectual foundations, the classic works of Faulhaber (1975) and Baumol, Panzar, and Willig (1982). It is time to retire this tool and replace it with something simpler and more effective and transparent.
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Suggested Citation

  • Russell Pittman, 2010. "Against the stand-alone-cost test in U.S. freight rail regulation," Journal of Regulatory Economics, Springer, vol. 38(3), pages 313-326, December.
    • Handle: RePEc:kap:regeco:v:38:y:2010:i:3:p:313-326
    DOI: 10.1007/s11149-010-9130-3
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    References listed on IDEAS

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    1. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, April.
    2. Meitzen, Mark E. & Larson, Alexander C., 1992. "The uses and abuses of stand-alone costs," Utilities Policy, Elsevier, vol. 2(2), pages 135-148, April.
    3. Gerald R. Faulhaber, 2005. "Cross-Subsidy Analysis With More Than Two Services," Journal of Competition Law and Economics, Oxford University Press, vol. 1(3), pages 441-448.
    4. Lenard, Thomas M & Bettendorf, Monica M & McGonegal, Stephen, 1992. "Stand-Alone Costs, Ramsey Prices, and Postal Rates," Journal of Regulatory Economics, Springer, vol. 4(3), pages 243-262, September.
    5. Faulhaber, Gerald R, 1975. "Cross-Subsidization: Pricing in Public Enterprises," American Economic Review, American Economic Association, vol. 65(5), pages 966-977, December.
    6. Russell Pittman, 2004. "Russian Railways Reform and the Problem of Non‐discriminatory Access to Infrastructure," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 75(2), pages 167-192, June.
    7. Gaskins Darius W., 2008. "Regulation of Freight Railroads in the Modern Era: 1970 - 2010," Review of Network Economics, De Gruyter, vol. 7(4), pages 1-12, December.
    8. Burton, Mark L, 1993. "Railroad Deregulation, Carrier Behavior, and Shipper Response: A Disaggregated Analysis," Journal of Regulatory Economics, Springer, vol. 5(4), pages 417-434, December.
    9. Alfred E. Kahn, 1988. "The Economics of Regulation: Principles and Institutions," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262610523, April.
    10. Ellig, Jerry, 2002. "Railroad Deregulation and Consumer Welfare," Journal of Regulatory Economics, Springer, vol. 21(2), pages 143-167, March.
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    Citations

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    Cited by:

    1. Wesley W. Wilson & Frank A. Wolak, 2018. "Benchmark Regulation of Multiproduct Firms: An Application to the Rail Industry," NBER Working Papers 25268, National Bureau of Economic Research, Inc.
    2. Wesley W. Wilson & Frank A. Wolak, 2016. "Freight Rail Costing and Regulation: The Uniform Rail Costing System," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 49(2), pages 229-261, September.
    3. T. Randolph Beard & Jeffrey Thomas Macher & Chris Vickers, 2016. "This Time is Different (?): Telecommunications Unbundling and Lessons for Railroad Regulation," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 49(2), pages 289-310, September.
    4. Miller, Keaton & Wilson, Wesley W., 2023. "Changes in rail rates for U.S. commodity grain shipments over time," Research in Transportation Economics, Elsevier, vol. 102(C).
    5. Richard L. Schmalensee & Wesley W. Wilson, 2016. "Modernizing U.S. Freight Rail Regulation," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 49(2), pages 133-159, September.
    6. John W. Mayo & David E. M. Sappington, 2016. "Regulation in a ‘Deregulated’ Industry: Railroads in the Post-Staggers Era," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 49(2), pages 203-227, September.
    7. 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.

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    More about this item

    Keywords

    Railroads; Regulation; Stand alone cost; Surface Transportation Board; Cross-subsidy; Contestability; K23; L51; L92;
    All these keywords.

    JEL classification:

    • K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L92 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Railroads and Other Surface Transportation

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