IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/3749.html
   My bibliography  Save this paper

Mergers, Deregulation and Cost Savings in the U.S. Rail Industry

Author

Listed:
  • Ernst R. Berndt
  • Ann F. Friedlaender
  • Judy Shaw-Er Wang Chiang
  • Christopher A. Vellturo

Abstract

The success of deregulation in creating a viable private rail freight system in the ?U.S. since 1979 is relatively undisputed. Deregulation has proceeded in three ways: (i) eased rate setting restrictions; (ii) simplified merger applications and approval procedures; and (iii) relaxed route abandonment policies. In this paper we attempt to disentangle the effects of deregulation on rail costs from those directly attributable to mergers and acquisitions. We employ a translog variable cost function, based on an unbalanced panel data set of annual observations for major U.S. Class I railroads from 1974 to 1986. We find that both deregulation and mergers contributed significantly to cost savings. However, of the accumulated cost savings achieved by the six major firms involved in mergers post-deregulation, we estimate that by 1986 about 91% of the reduction in accumulated costs is due to deregulation, and about 9% is directly due to mergers and acquisitions (which in turn were facilitated by regulatory reforms). In terms of factor biases, we find that both deregulation and mergers resulted in a substantial labor-saving bias; the point estimate of the deregulation labor-saving bias is larger than that for mergers, but we were not able to estimate this bias precisely. We conclude that mergers were not a prerequisite for railroads being able to achieve substantial cost and productivity improvements in our 1974-1986 sample period. Deregulation also had an enormous direct impact; indeed, its impact appears to have been much larger.

Suggested Citation

  • Ernst R. Berndt & Ann F. Friedlaender & Judy Shaw-Er Wang Chiang & Christopher A. Vellturo, 1991. "Mergers, Deregulation and Cost Savings in the U.S. Rail Industry," NBER Working Papers 3749, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:3749
    Note: PR
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w3749.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Hausman, Jerry, 2015. "Specification tests in econometrics," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 38(2), pages 112-134.
    2. Hausman, J. A. & Newey, W. K. & Powell, J. L., 1995. "Nonlinear errors in variables Estimation of some Engel curves," Journal of Econometrics, Elsevier, vol. 65(1), pages 205-233, January.
    3. Levin, Richard C & Weinberg, Daniel H, 1979. "Alternatives for Restructuring the Railroads: End-to-End or Parallel Mergers?," Economic Inquiry, Western Economic Association International, vol. 17(3), pages 371-388, July.
    4. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
    5. Berndt, Ernst R & Savin, N Eugene, 1975. "Estimation and Hypothesis Testing in Singular Equation Systems with Autoregressive Disturbances," Econometrica, Econometric Society, vol. 43(5-6), pages 937-957, Sept.-Nov.
    6. Friedlaender, Ann Fetter., 1990. "Rail costs and capital adjustments in a quasi-regulated environment," Working papers 3177-90., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    7. 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.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ann F. Friedlaender & Ernst R. Berndt & Judy Shaw-Er Wang Chiang & Mark Showalter & Christopher A. Vellturo, 1991. "Rail Costs and Capital Adjustments in a Quasi-Regulated Environment," NBER Working Papers 3841, National Bureau of Economic Research, Inc.

    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. Ernst Berndt & Ann Friedlaender & Judy Chiang & Christopher Vellturo, 1993. "Cost effects of mergers and deregulation in the U.S. Rail industry," Journal of Productivity Analysis, Springer, vol. 4(1), pages 127-144, June.
    2. Andreou, Panayiotis C. & Louca, Christodoulos & Panayides, Photis M., 2012. "Valuation effects of mergers and acquisitions in freight transportation," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 48(6), pages 1221-1234.
    3. Busse, Matthias & Hefeker, Carsten, 2007. "Political risk, institutions and foreign direct investment," European Journal of Political Economy, Elsevier, vol. 23(2), pages 397-415, June.
    4. Andrés Rodríguez-Pose & Yannis Psycharis & Vassilis Tselios, 2012. "Public investment and regional growth and convergence: Evidence from Greece," Papers in Regional Science, Wiley Blackwell, vol. 91(3), pages 543-568, August.
    5. Eleftherios Angelopoulos & Antonios Georgopoulos, 2015. "The Determinants of Shareholder Value in Retail Banking During Crisis Years: The Case of Greece," Multinational Finance Journal, Multinational Finance Journal, vol. 19(2), pages 109-147, June.
    6. Ali Uyar & Simone Pizzi & Fabio Caputo & Cemil Kuzey & Abdullah S. Karaman, 2022. "Do shareholders reward or punish risky firms due to CSR reporting and assurance?," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(5), pages 1596-1620, July.
    7. Busse, Matthias, 2004. "On the determinants of core labour standards: the case of developing countries," Economics Letters, Elsevier, vol. 83(2), pages 211-217, May.
    8. Kira Lancker & Julia Bronnmann, 2022. "Substitution Preferences for Fish in Senegal," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 82(4), pages 1015-1045, August.
    9. Krishna Dayal Pandey & Tarak Nath Sahu, 2019. "Debt Financing, Agency Cost and Firm Performance: Evidence from India," Vision, , vol. 23(3), pages 267-274, September.
    10. Migliardo, Carlo, 2012. "Heterogeneity in price setting behavior, spatial disparities and sectoral diversity: Evidence from a panel of Italian firms," Economic Modelling, Elsevier, vol. 29(4), pages 1106-1118.
    11. Michael Rusinek & François Rycx, 2013. "Rent-Sharing under Different Bargaining Regimes: Evidence from Linked Employer–Employee Data," British Journal of Industrial Relations, London School of Economics, vol. 51(1), pages 28-58, March.
    12. Onur Başer & Joseph C. Gardiner & Cathy J. Bradley & Hüseyin Yüce & Charles Given, 2006. "Longitudinal analysis of censored medical cost data," Health Economics, John Wiley & Sons, Ltd., vol. 15(5), pages 513-525, May.
    13. Horsky Sharon & Michael Steven C. & Silk Alvin J., 2012. "The Internalization of Advertising Services: An Inter-Industry Analysis," Review of Marketing Science, De Gruyter, vol. 10(1), pages 1-35, October.
    14. Horst Feldmann, 2009. "The quality of the legal system and labor market performance around the world," European Journal of Law and Economics, Springer, vol. 28(1), pages 39-65, August.
    15. Yana Akhtyrska & Franz Fuerst, 2021. "People or Systems: Does Productivity Enhancement Matter More than Energy Management in LEED Certified Buildings?," Sustainability, MDPI, vol. 13(24), pages 1-35, December.
    16. Hellman, Joel S. & Jones, Geraint & Kaufmann, Daniel, 2003. "Seize the state, seize the day: state capture and influence in transition economies," Journal of Comparative Economics, Elsevier, vol. 31(4), pages 751-773, December.
    17. Allini, Alessandra & Rakha, Soliman & McMillan, David G. & Caldarelli, Adele, 2018. "Pecking order and market timing theory in emerging markets: The case of Egyptian firms," Research in International Business and Finance, Elsevier, vol. 44(C), pages 297-308.
    18. Boswijk, H. Peter & Franses, Philip Hans & van Dijk, Dick, 2010. "Cointegration in a historical perspective," Journal of Econometrics, Elsevier, vol. 158(1), pages 156-159, September.
    19. Luis Jácome & Francisco Vázquez, 2005. "Any Link Between Legal Central Bank Independence and Inflation? Evidence from Latin America and the Caribbean," Macroeconomics 0508011, University Library of Munich, Germany.
    20. Olivier Damette & Philippe Delacote, 2009. "The environmental resource curse hypothesis: the forest case," Working Papers - Cahiers du LEF 2009-04, Laboratoire d'Economie Forestiere, AgroParisTech-INRA.

    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:nbr:nberwo:3749. 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: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.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.