IDEAS home Printed from https://ideas.repec.org/p/isu/genstf/1984010108000010001.html
   My bibliography  Save this paper

The cost structure of U.S. railroad industry, 1980-81

Author

Listed:
  • Lee, Tenpao

Abstract

The proposed Coal Rate Guidelines published by the Interstate Commerce Commission imply that the railroad industry can raise rates on the so called "captive" coal to achieve the goal of revenue adequacy. Revenue adequacy is defined as a level of earnings sufficient to enable a carrier to meet all of its expenses, retire a reasonable amount of debt, cover plant depreciation and obsolescence, and earn a return on investment adequate to attract new capital. If the proposed Coal Rate Guidelines are implemented on coal traffic, it is expected that similar guidelines will be applied to other so called "captive" commodities, such as grains, fertilizers, chemicals, and agricultural products. The proposed Guidelines emphasize the inelastic demand for railroad transportation of "captive" coal, but ignore the cost side and the structures of the railroad industry as a crucial part in achieving railroad revenue adequacy;To estimate the potential in achieving the goal of revenue adequacy of the railroad industry from a cost saving point of view, two flexible functional forms, the translog and generalized Leontief models were used to estimate cost behavior under different scenarios. The results indicate that: (1) the railroad industry has substantial returns to traffic density and to average length of haul; (2) the railroad industry has small returns to firm size; (3) the net effects of returns to density, length of haul, and firm size are large and positive; (4) capital and labor are highly substitutable while labor and fuel, and capital and fuel are less substitutable; (5) labor costs are the major component of total costs; (6) all input price elasticities of demand are less than unity; (7) the railroad industry had excess capacity in 1980-81; (8) a cost saving policy can, in part, achieve the goal of revenue adequacy for the railroad industry in 1980-81;This study is based on 1980-81 Class I railroad data, hence the interpretation of the results is limited to the cost structure of these years. As the railroad industry has experienced rapid technological change, further research may be needed when new data become available. Moreover, the model specification can be further improved if less aggregate data are available.

Suggested Citation

  • Lee, Tenpao, 1984. "The cost structure of U.S. railroad industry, 1980-81," ISU General Staff Papers 1984010108000010001, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genstf:1984010108000010001
    as

    Download full text from publisher

    File URL: https://dr.lib.iastate.edu/server/api/core/bitstreams/9fdb4238-979f-414a-9fe7-91e42ad810a3/content
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Braeutigam, Ronald R & Daughety, Andrew F & Turnquist, Mark A, 1982. "The Estimation of a Hybrid Cost Function for a Railroad Firm," The Review of Economics and Statistics, MIT Press, vol. 64(3), pages 394-404, August.
    2. R. G. Bressler, 1945. "Research Determination of Economies of Scale," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 27(3), pages 526-539.
    3. Caves, Douglas W & Christensen, Laurits R, 1980. "Global Properties of Flexible Functional Forms," American Economic Review, American Economic Association, vol. 70(3), pages 422-432, June.
    4. Hans P. Binswanger, 1974. "A Cost Function Approach to the Measurement of Elasticities of Factor Demand and Elasticities of Substitution," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 56(2), pages 377-386.
    5. Berndt, Ernst R & Khaled, Mohammed S, 1979. "Parametric Productivity Measurement and Choice among Flexible Functional Forms," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1220-1245, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Yumei Liu & Wuyang Hu & Simon Jetté-Nantel & Zhihong Tian, 2014. "The Influence of Labor Price Change on Agricultural Machinery Usage in Chinese Agriculture," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 62(2), pages 219-243, June.
    2. Chalfant, James & Wallace, Nancy, 1991. "Testing the Translog Specification with the Fourier Cost Function," CUDARE Working Papers 198581, University of California, Berkeley, Department of Agricultural and Resource Economics.
    3. Woo, C.K. & Liu, Y. & Zarnikau, J. & Shiu, A. & Luo, X. & Kahrl, F., 2018. "Price elasticities of retail energy demands in the United States: New evidence from a panel of monthly data for 2001–2016," Applied Energy, Elsevier, vol. 222(C), pages 460-474.
    4. Diewert, Walter E & Wales, Terence J, 1987. "Flexible Functional Forms and Global Curvature Conditions," Econometrica, Econometric Society, vol. 55(1), pages 43-68, January.
    5. Voigt, Peter, 2004. "Russlands Weg vom Plan zum Markt: Sektorale Trends und regionale Spezifika. Eine Analyse der Produktivitäts- und Effizienzentwicklungen in der Transformationsphase," Studies on the Agricultural and Food Sector in Transition Economies, Leibniz Institute of Agricultural Development in Transition Economies (IAMO), volume 28, number 93021, September.
    6. Hanan Nazier, 2019. "Estimating Labor Demand Elasticities and Elasticities of Substitution in Egyptian Manufacturing Sector: A Firm-Level Static Analysis," The Indian Journal of Labour Economics, Springer;The Indian Society of Labour Economics (ISLE), vol. 62(4), pages 549-575, December.
    7. Kesavan, Thulasiram, 1988. "Monte Carlo experiments of market demand theory," ISU General Staff Papers 198801010800009854, Iowa State University, Department of Economics.
    8. William A. Barnett & Ikuyasu Usui, 2007. "The Theoretical Regularity Properties of the Normalized Quadratic Consumer Demand Model," International Symposia in Economic Theory and Econometrics, in: Functional Structure Inference, pages 107-127, Emerald Group Publishing Limited.
    9. Dumagan, Jesus C. & Mount, Timothy D., 1996. "Global properties of well-behaved demand systems: A generalized logit model specification," Economic Modelling, Elsevier, vol. 13(2), pages 235-256, April.
    10. Lila J. Truett & Dale B. Truett, 2011. "Whither Germany and the EMU In a Challenging Environment?," Working Papers 0019, College of Business, University of Texas at San Antonio.
    11. Matteo Manera & Bruno Sitzia, 2005. "Empirical factor demands and flexible functional forms: a bayesian approach," Economic Systems Research, Taylor & Francis Journals, vol. 17(1), pages 57-75.
    12. Panos Fousekis & Christos Pantzios, 1999. "A Family of Differential Input Demand Systems with Application to Greek Agriculture," Journal of Agricultural Economics, Wiley Blackwell, vol. 50(3), pages 549-563, September.
    13. Lee, Tenpao & Baumel, C. Phillip, 1987. "The Cost Structure of the U.S. Railroad Industry Under Deregulation," Journal of the Transportation Research Forum, Transportation Research Forum, vol. 28(1).
    14. Lila J. Truett & Dale B. Truett, 2008. "The South African Textile Industry: Challenges and Opportunities," Working Papers 0044, College of Business, University of Texas at San Antonio.
    15. Michel Dumont, 2006. "Foreign outsourcing, labour demand and the choice of functional form," Journal of Applied Economics, Universidad del CEMA, vol. 9, pages 255-273, November.
    16. He, Yongda & Lin, Boqiang, 2019. "Heterogeneity and asymmetric effects in energy resources allocation of the manufacturing sectors in China," Energy, Elsevier, vol. 170(C), pages 1019-1035.
    17. Estelle Cantillon & Pai-Ling Yin, 2008. "Asymmetric Network Effects," Working Papers 08-42, NET Institute.
    18. Feng, Guohua & Serletis, Apostolos, 2008. "Productivity trends in U.S. manufacturing: Evidence from the NQ and AIM cost functions," Journal of Econometrics, Elsevier, vol. 142(1), pages 281-311, January.
    19. Nguyen, Duong T.M. & McLaren, Keith Robert & Zhao, Xueyan, 2008. "Multi-Output Broadacre Agricultural Production: Estimating A Cost Function Using Quasi-Micro Farm Level Data From Australia," 2008 Conference (52nd), February 5-8, 2008, Canberra, Australia 6009, Australian Agricultural and Resource Economics Society.
    20. Thomsen, Thomas, 2000. "Short cuts to dynamic factor demand modelling," Journal of Econometrics, Elsevier, vol. 97(1), pages 1-23, July.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:isu:genstf:1984010108000010001. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Curtis Balmer (email available below). General contact details of provider: https://edirc.repec.org/data/deiasus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.