RAILROAD DEREGULATION: IMPACTS ON RATES AND PROFITABILITY

With the imminent bankruptcy of six of the nation's major railroads, the fragile condition of the United States rail industry became apparent to all in the early 1970s. Economists and other observers complained that the regulatory policies were threatening the industry's viability and placing a substantial burden on shippers. In 1976, Congress passed the Railroad Revitalization and Regulatory Reform Act, giving greater pricing flexibility to railroads, and easing restrictions on railroad track rationalization and mergers. Significant regulatory changes did not occur until 1979 when the Interstate Commerce Commission (ICC) introduced confidential contract rates, exempted some commodities from regulation, and encouraged rail rationalization. In 1980, the Staggers Act confirmed what the ICC had done and completed the deregulation process for the rail industry. Several studies have investigated the impact of deregulation. A study by McFarland examined the effects of deregulation on rates and labor productivity, while also examining post-regulation profits. This paper attempts to improve on the rail rate estimation employed by McFarland, while also measuring the impact of deregulation on rail profitability. While excess profitability is key in a deregulated environment, equally important is the financial viability of the railroads and how it has changed with deregulation. Improved profitability without large increases in rates shows the further benefits of deregulation. Section II presents some background information on the arguments behind deregulation and also the approach of McFarland. Section III presents an extension of the approach used by McFarland by providing an improved rate estimation model, and by introducing a profit estimation. Section IV describes the data sources and the empirical estimation techniques used. Section V presents empirical estimates, and the final section discusses implications and presents concluding remarks.

• Record URL:
  https://www.ugpti.org/resources/reports/details.php?id=125
• Corporate Authors:

  Upper Great Plains Transportation Institute

  North Dakota State University
  1320 Albrecht Boulevard
  Fargo, ND  United States  581052
• Authors:
  • Bitzan, John
• Publication Date: 1994-7

Language

• English

Media Info

• Media Type: Digital/other
• Features: References; Tables;
• Pagination: 16 p.

Subject/Index Terms

• TRT Terms: Bankruptcy; Deregulation; Estimating; Estimation theory; Flexibility; Mathematical models; Pricing; Profitability; Railroad equipment industry; Rates
• Identifier Terms: Railroad Revitalization and Regulatory Reform Act of 1976
• Uncontrolled Terms: Models
• Old TRIS Terms: Track rationalization
• Subject Areas: Economics; Finance; Railroads; Vehicles and Equipment;

Filing Info

• Accession Number: 00737579
• Record Type: Publication
• Report/Paper Numbers: 122
• Files: TRIS
• Created Date: Jun 19 1997 12:00AM