Rail Costs and Capital Adjustments in a Quasi-Regulation Environment

This paper reports on the estimation of a cost function using pooled data for major US railroads for the period of 1974-86. Analysis is performed of short and long-run returns to scale, the extent of capital disequilibrium, and the adjustments to capital in the heavily regulated and quasi-regulated environments before and after the passage of the Staggers Act in 1980. It is found that there is considerable overcapitalisation in the rail industry and that this has persisted in spite of the Act.