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Rail Costs and Capital Adjustments in a Quasi-Regulated Environment

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

June 1990

Anne F. Friedlaender, Ernst R. Berndt, Judy Shaw-Er Wang Chiang, and Christopher A. Vellturo, June 1990

This paper reports on results obtained from estimation of a rail cost function using a pooled time-series cross section of Class I U.S. railroads for the period 1973-1986. Based on the results of this cost function, an analysis is performed of short-run and long-run returns to scale, and adjustments in way and structure capital in the heavily regulated and quasi regulated environments. 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 to abandon track and service provided by the Staggers Act.

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