POST-STAGGERS PRODUCTIVITY FOR CLASS I RAILROADS

Since 1980, the Class I rail industry has been restructured as the carriers adapted and changed in response to new regulatory freedoms. Ultimately, these changes are reflected in the cost structure and in productivity gains. The goal of this research was to estimate productivity gains and cost savings in the railroad industry since 1978. Further, prior work was extended by separating output and size variables into measures of high and low density output and miles of track. For purposes of comparison, a translog cost function employing traditional variables was also estimated. This work also used a more complete and more up-to-date data set than previous analyses. Three conclusions are drawn. First, deregulation has resulted in a dramatic downward shift in the average variable cost function. By 1989, the effects of deregulation had lowered costs between 31 to 45%. Second, productivity gains increased dramatically with deregulation, to annual cost reductions ranging from about 5 to 7%. However, since 1987 these values have fallen and are currently about the same levels as in 1978 (about 1%). Finally, the results of the two cost specifications are not entirely consistent. The level of cost savings from deregulation is more than 20% higher for the traditional rail cost model. Further, the multiple output cost model suggests that economies of density have largely been realized. This suggests that additional work needs to be done to reconcile and understand these differences. The report is organized in seven sections: (I) Problem Statement; (II) Previous Research; (III) Conceptual Issues; (IV) Empirical Model; (V) Data; (VI) Empirical Results; and (VII) Summary and Conclusions.