Recovering Capital Expenditures: The Railroad Industry Paradox
This research combines engineering, economic, and financial methods and makes contributions in each area. Railroad maintenance strategies that rely more heavily on capital investment are more cost effective. Infrastructure capital spending is caused by current and future output, and is therefore a short run marginal cost. Railroad marginal cost formulae appear to substantially underestimate the true incremental nature of ongoing capital expenditures. Regulatory average variable cost formulae do not incorporate variable capital expenditures suggesting that Surface Transportation Board estimates of revenue to variable cost are overstated, subjecting a larger share of rail traffic to potential economic regulation than would otherwise occur.
University of Illinois - Urbana-Champaign
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University of Illinois at Urbana-Champaign