Date of Award

May 2015

Degree Type


Degree Name

Doctor of Philosophy



First Advisor

James Peoples

Committee Members

John Heywood, Suyong Song, Itziar Lazkano, Sarah Kroeger


Allocative Efficiency, Class-1 Railroad, Economies of Scope, Productivity Decomposition


The railroad industry has traditionally been a major source for transporting bulk products in the United States. Prior to deregulation this industry faced fairly stringent economic regulation and stringent work-rules. However, with passage of the Staggers Act in 1980, railroad carriers now had greater opportunity to legally abandon unprofitable short-haul service. Carriers were also able to negotiate more flexible work-rules as well as take advantage of greater freedom setting competitive shipping rates. These policy changes facilitated significant changes to the cost of providing shipping service in the railroad industry. This dissertation examines three different aspects of railroad cost in the current period of a more market-oriented business environment. Coverage includes analysis of economies of scope, allocative use of factor inputs and determinants of productivity growth.

The first essay examines cost results from estimating a normalized quadratic cost function for the US rail industry to empirically test whether maintenance of short-haul services contributes to economies of scope for Class-1 rail carriers. The analysis examines the existence of economies of scope in the railroad industry with respect to different types of services provided by carriers, namely; unit train, way train and through train services. Special attention is given to the (dis)economies of scope associated with providing way train service, since routes for this service cover small distances and, therefore, depict short-haul shipping that has traditionally been associated with cost inefficiencies. The parameter estimates obtained from estimating the normalized quadratic cost function are used to simulate hypothetical firms that provide various combinations of outputs, since there is no available data to compare rail firms that provide different combinations of transport service. Findings suggest that the majority of the observations exhibit economies of scope. Without imposing concavity, more than 95 percent of observations display economies of scope, while more than 70 percent of observations display economies of scope when input price concavity is imposed. The findings on diseconomies of scope also suggest that providing way service is not the primary source, rather all three services equally contribute to diseconomies for the non-substantial number of observations when this occurs.

The second essay explores the possibility of railroad input market distortion in the form of allocative inefficiency due to labor market regulation and union work-rules. Rail carriers have consistently negotiated less rigid work-rules which may create a business environment that enhances carriers' ability to employ an allocatively efficient mix of inputs. Using labor as the benchmark of comparison when examining usage of factor inputs suggests that indeed carrier do employ an allocatively efficient combination of equipment and labor, material and labor, and way and structures and labor. Findings suggest carriers over invest in fuel with respect to labor. This latter finding is interpreted as suggesting that relative to shadow fuel prices, low shadow wages due to work-rule restrictions and due to the use of fuel efficient locomotives that facilitate the overuse of fuel relative to labor. Nonetheless, efficient use of labor relative to non-fuel inputs is consistent with the notion that less restrictive work-rules promotes a business environment contributing to allocative efficient use of those inputs.

The third essay examines factor price effects on productivity in the railroad industry. Findings suggest that price effects are not the main source of changes in productivity. Among the price effects, the price of material and price of way and structures show larger and significant magnitudes in explaining the sources of changes in productivity compared to other prices. Interestingly, price of labor and price of fuel are the input prices that contribute the least to changes in unit cost.

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Economics Commons