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Freight Rail Costing and Regulation: The Uniform Rail Costing System

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  • Wesley W. Wilson

    (University of Oregon)

  • Frank A. Wolak

    (Stanford University)

Abstract

Railroad regulation in the post-Staggers Act regime compares the revenues earned to a measure of the “variable cost” of the shipment. While revenues are readily observed, the “variable cost” is calculated using the “Uniform Rail Costing System” (URCS) that was developed by the Interstate Commerce Commission. We characterize the properties of the URCS rail costing methodology and its role in rate regulation, and we assess whether it produces an economically valid estimate of the cost caused by a rail shipment. We find that the URCS methodology is an accounting cost allocation procedure that does not recover an estimate of the cost of a rail shipment that a rational railroad operator would use to make pricing or operating decisions. We then explain why in the post-Staggers Act regime, even if an economic meaningful shipment cost measure were available, this information would not come any closer to solving the problem of determining what is an unreasonable price for a railroad to charge. We conclude by arguing that the use of the URCS methodology should be abandoned in railroad rate reasonableness regulation and replaced with a price benchmarking approach.

Suggested Citation

  • 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.
    • Handle: RePEc:kap:revind:v:49:y:2016:i:2:d:10.1007_s11151-016-9523-2
    DOI: 10.1007/s11151-016-9523-2
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    Cited by:

    1. Alexandrov, Alexei & Pittman, Russell & Ukhaneva, Olga, 2018. "Pricing of Complements in the U.S. freight railroads: Cournot versus Coase," MPRA Paper 86279, University Library of Munich, Germany.
    2. 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.
    3. Pittman, Russell, 2024. "Two Roads Diverged: Two Alternate Strategies for Protecting Captive Freight Shippers in the “Americas” Model of Freight Rail Restructuring," MPRA Paper 122284, University Library of Munich, Germany.
    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. Hernández, Carlos Eduardo & Cantillo-Cleves, Santiago, 2024. "A toolkit for setting and evaluating price floors," Journal of Public Economics, Elsevier, vol. 232(C).
    6. James B. Bushnell & Jonathan E. Hughes & Aaron Smith, 2017. "Food vs. Fuel? Impacts of Petroleum Shipments on Agricultural Prices," NBER Working Papers 23924, National Bureau of Economic Research, Inc.
    7. 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.
    8. 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.

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    More about this item

    Keywords

    URCS; Railroad regulation; Stand-Alone Costs;
    All these keywords.

    JEL classification:

    • L92 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Railroads and Other Surface Transportation
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
    • K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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