Understanding Railroad Investment Behaviors, Regulatory Processes, and Related Implications for Efficient Industry Oversight

Understanding Railroad Investment Behaviors, Regulatory Processes, and Related Implications for... Current Surface Transportation Board methods rely on comparisons between revenue needs and the revenues that are earned by railroads. This paper reconsiders the methods that are used to determine this “revenue adequacy”. Specifically, we consider whether the cost of railroad capital might be better estimated through methods that incorporate a “real-options” perspective. While not definitive, our current work suggests that the irreversible nature of many railroad capital expenditures supports a real-options approach and that such an approach could potentially improve assessments of railroad cost of capital. Further, we conclude that applying a real-options methodology also can measurably improve policy-makers’ broader understanding of when, where, and how railroads choose to create new freight capacity. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Industrial Organization Springer Journals

Understanding Railroad Investment Behaviors, Regulatory Processes, and Related Implications for Efficient Industry Oversight

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Publisher
Springer US
Copyright
Copyright © 2016 by Springer Science+Business Media New York
Subject
Economics; Industrial Organization; Microeconomics
ISSN
0889-938X
eISSN
1573-7160
D.O.I.
10.1007/s11151-016-9519-y
Publisher site
See Article on Publisher Site

Abstract

Current Surface Transportation Board methods rely on comparisons between revenue needs and the revenues that are earned by railroads. This paper reconsiders the methods that are used to determine this “revenue adequacy”. Specifically, we consider whether the cost of railroad capital might be better estimated through methods that incorporate a “real-options” perspective. While not definitive, our current work suggests that the irreversible nature of many railroad capital expenditures supports a real-options approach and that such an approach could potentially improve assessments of railroad cost of capital. Further, we conclude that applying a real-options methodology also can measurably improve policy-makers’ broader understanding of when, where, and how railroads choose to create new freight capacity.

Journal

Review of Industrial OrganizationSpringer Journals

Published: Apr 28, 2016

References

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