STUDIES IN THE ECONOMICS OF FEDERAL TRANSPORTATION POLICY #2. ECONOMETRIC ESTIMATION OF COST FUNCTIONS IN THE TRANSPORTATION INDUSTRIES

The validity of econometric estimates of the costs of the various transportation modes remains an issue surrounded by controversy. While there have been numerous econometric studies of rail, trucking and airline costs, no one has yet developed a costing methodology that has yielded results that are generally accepted as valid. This inability to obtain a consensus concerning costing methodology and/or the validity of empirical results arises not so much from a lack of effort, but rather from the failure to specify the cost functions that appropriately characterize the structure of technology. Specifically, there appears to be three fundamental problems that one must address in specifying and estimating cost functions for the transportation industries. First, the output of a transportation firm, whatever the mode, is multidimensional by its very nature. Consequently, the mix of output can have a major impact upon the costs of any given firm. Second, it is generally agreed that the activities of each of the transportation modes are characterized by joint and common costs, implying that their technology is characterized by joint production. Third, to the extent that regulatory or other constraints prevent the firms in each mode from making optimal adjustments in capacity, they are not generally in a position of long-run equilibrium operating along their long-run cost function. Consequently, efforts to estimate long-run cost functions directly from cross-sectional data will yield seriously biased coefficients and resulting measures of marginal costs. This paper reports on a general methodology using a translog cost function that meets the objections raised with respect to most cost functions: it permits multiple outputs and quality levels; it is of a sufficiently flexible form to test hypotheses concerning the underlying structure of production; and it can be used in either its short-run or long-run form.

• Supplemental Notes:
  • Research supported by the Department of Transportation, Office of University Research.
• Corporate Authors:

  Massachusetts Institute of Technology

  Center for Transportation Studies, Room 1121
  Cambridge, MA  United States  02139
• Authors:
  • Spady, R
  • Friedlaender, A F
• Publication Date: 1976-9

Media Info

• Features: Appendices; Figures; References;
• Pagination: 98 p.

Subject/Index Terms

• TRT Terms: Air transportation; Cost finding; Costs; Econometric models; Econometrics; Economic analysis; Economics; Estimates; Impacts; Joint use; Management; Marginal costs; Mathematical models; Methodology; Mode choice; Operations; Planning; Regulations; Traffic density; Transportation
• Old TRIS Terms: Government regulations; Joint facilities; Management planning; Operations planning
• Subject Areas: Administration and Management; Economics; Law; Planning and Forecasting; Transportation (General);

Filing Info

• Accession Number: 00174349
• Record Type: Publication
• Source Agency: Massachusetts Institute of Technology
• Report/Paper Numbers: CTS-76-13
• Contract Numbers: DOT-OS-50239
• Files: TRIS
• Created Date: May 31 1978 12:00AM