FROM TRANSPORTATION OUTPUT TO COST FUNCTIONS : THE USELESSNESS OF THE AGGREGATE APPROACH

It is well known that duality allows technical properties to be analysed from the cost function, under both some market conditions and cost minimizing behaviour of the firm. Accordingly, the estimation of cost functions has been a preferred approach to analyse scale economics and industry structure in transportation activities. Although major improvements have been made in the estimation of transportation cost functions in terms of both functional specification and microeconomic properties, detected inconsistencies between results from applied studies and observed industry behaviour make policy conclusions potentially unreliable. Virtually all studies up to date have used ton-miles (or similar measures) as the basis for output description. As this seems to be an important source of systematic methodological failure, in this paper we explore the theoretical implications of consistently deriving cost functions from simplified technical relations. The product of a transportation system is defined as a vector of origin-destination-commodity-period specific flows. Technical optimality is summarised by the concept of transportation function, which is used analytically to derive cost functions for two elementary spatial settings. From this, the ambiguity of the aggregate output definition is shown. Most important, economies of spatial scope are shown to be a potential source of merging incentives in spite of the existence of constant returns to scale. The recently developed theory of multi-output production is advocated as the appropriate micro-economic basis to analyse transportation industries, which must be applied consistently to firms behaviour if duality properties of transportation cost functions are to be used for reliable policy analysis. (Author/TRRL)

• Availability:
  • Find a library where document is available. Order URL: http://worldcat.org/isbn/0860501116
• Supplemental Notes:
  • This paper was presented during the Proceedings of Seminar P held at the PTRC's 10th Annual Summer Meeting, University of Warwick, Transport Economics.
• Corporate Authors:

  PTRC Education and Research Services Limited

  110 Strand
  London WC2,   England 
• Authors:
  • Jara, E S
• Conference:
  • Planning & Transport Res & Comp, Sum Ann Mtg, Proc
• Publication Date: 1982

Media Info

• Features: Figures; References;
• Pagination: p. 69-81

Subject/Index Terms

• TRT Terms: Aggregates; Analysis; Commodities; Conferences; Costs; Economic efficiency; Economic factors; Economics; Economies of scale; Freight traffic; Freight transportation; Level of service; Mathematical models; Origin and destination; Policy; Policy analysis; Traffic flow; Transportation
• Uncontrolled Terms: Aggregate analysis; Cost analysis; Cost functions; Efficiency
• ITRD Terms: 8525: Conference; 224: Cost; 263: Economics of transport; 5911: Efficiency; 283: Freight; 741: Goods traffic; 653: Level of service; 6473: Mathematical model; 687: Origin destination traffic; 173: Policy; 671: Traffic flow
• Subject Areas: Economics; Planning and Forecasting; Policy; Society; Transportation (General); I10: Economics and Administration; I72: Traffic and Transport Planning;

Filing Info

• Accession Number: 00381611
• Record Type: Publication
• Source Agency: Transport Research Laboratory
• ISBN: 0-86050-111-6
• Files: ITRD, TRIS
• Created Date: Apr 30 1984 12:00AM