ECONOMIES OF DENSITY AND SERVICE LEVELS ON U.S. RAILROADS: AN EXPERIMENTAL ANALYSIS

Econometric studies have consistently shown that U.S. railroads enjoy susbstantial economies of traffic density, although the underlying causes of these economies are not fully understood. This paper shows how increased density makes it possible to achieve economies in the use of train labor and equipment. Increased density not only allows for longer trains, thus spreading train cost over a larger output, but also makes it economical to provide direct train connections between an increasing number of terminals. This reduces transit time. Reductions in transit time may be a more significant benefit of density than reductions in unit cost. Furthermore, estimates of returns to density are quite sensitive to the level of service provided.