Technical Reports

Development of Hybrid Cost Functions From Engineering and Statistical Techniques: The Case of Rail - Phase II Final Report

  • 01
  • Oct
  • 1984
AUTHOR: Andrew F. Daughety, Mark A. Turnquist, Ronald R. Braeutigam
SUBJECT: Evaluation
KEYWORDS: Cost Analysis, Railroad Operations Analysis, Scale Economies
ABSTRACT: Cost analysis is important in every transportation industry, to the firms or agencies which provide service, to regulatory bodies, and to public policy makers. In the past, railroad cost analyses have been of two types: 1) statistical analyses of aggregate cross-section data from a variety of firms, or 2) very detailed operations-oriented studies. The premise of the work reported here is that a "hybrid" approach, using both economic theory and statistical methods on the one hand, and engineering analysis of operations on the other, can produce superior results. This report covers Phase II of the project, which focused on analysis of a major class I railroad. A short-run variable cost function was estimated econometrically, and used as a basis for deriving the associated long-run function. We also developed a simple, but relatively accurate, network model to estimate operating costs. This model may be used to estimate origin-destination specific marginal operating costs. Econometric analysis of the output from the model leads to a theoretically justifiable equation for predicting marginal operating costs, and their sensitivity to changes in flows and input prices.
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