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Rail Costs and Capital Adjustments in a Quasi Regulated Environment

Ann F. Friedlaender, Ernst R. Berndt, Judy Shaw-Er Wang Chiang, Mark Showalter, and Christopher A. Vellturo

September 1991

Ann F. Friedlaender, Ernst R. Berndt, Judy Shaw-Er Wang Chiang, Mark Showalter, and Christopher A. Vellturo, September 1991

This paper reports on results obtained from the estimation of a rail cost function using a pooled-time series, cross section of Class I railroads for the period 1974-1986. An analysis is performed of short-run and long-run returns to scale, the extent of capital disequilibrium, and adjustments to way and structures capital in the heavily regulated and quasi-regulated environments before and after the passage of the Staggers Act in 1980. In general, it is found that there is considerable overcapitalization in the rail industry and that this has persisted in spite of the regulatory freedom provided by the Staggers Act.

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