Douglas W. Caves

Economies of Density versus Economies of Scale: Why Trunk and Local Service Airline Costs Differ

There has been a perception that U.S. trunk airlines had an inherent cost advantage over smaller regional airlines because of economies of scale. We have formulated a general model of airline costs, which we estimate by using panel data on large and small airlines. Differences in scale are shown to have no role in explaining higher costs for small airlines. The primary factor explaining cost differences is density of traffic within an airlines network. Also of major importance is the average length of individual flights.

The Relative Efficiency of Public and Private Firms in a Competitive Environment: The Case of Canadian Railroads

The efficiency of public and private firms is usually compared in industries which have heavy regulation and limited competition. In this paper we present a case study in which the effects of property rights can be isolated from the effects of regulation on noncompetitive markets. We compare the postwar productivity performance of the Canadian National and Canadian Pacific Railroads. Contrary to the predictions of the property rights literature, we find no evidence of inferior performance by the government-owned railroad. We conclude that any tendency toward inefficiency resulting from public ownership has been overcome by the benefits of competition.

Modelling the Structure of Cost and Production for Multiproduct Firms

Virtually all enterprises market a multiplicity of products; yet, most econometric models of production or cost presume a single homogeneous output. Moreover, models which do recognize multiple products typically specify transformation functions with severe a priori restrictions on the structure of production and cost. Recently McFadden [13; 14], Jacobsen [9], and Shephard [16] have used the principles of duality to demonstrate the existence of multiproduct cost functions corresponding to general production structures. This gives rise to the possibility of directly modelling the structure of cost for multiproduct firms without imposing arbitrary a priori restrictions on the structure of production. Two common restrictions on the structure of production are homogeneity and separability. In this paper we demonstrate that these restrictions can be relaxed by the use of a flexible multiproduct cost function. We illustrate the methodology with a data set which has been previously analyzed under restrictive specifications. The results indicate that the imposition of homogeneity and separability can greatly distort estimates of marginal costs and scale economics.

Productivity in U.S. Railroads, 1951-1974

This paper develops estimates of U.S. railroad productivity by using methods based on the neoclassical theory of production. We find that railroad productivity grew at the average annual rate of 1.5 percent per year during the 1951-1974 period. Using conventional measurement procedures for comparison, we find productivity growth of 3.6 percent per year. The lower estimate of 1.5 percent is the result of using procedures which better represent the railroad production process. These include using (1) estimated cost elasticities, rather than revenue shares, as output weights, (2) actual cost shares, rather than national income shares, as input weights, and (3) input and output weights which change annually.

Econometric analysis of residential time-of-use electricity pricing experiments

Abstract This paper adapts the two-stage neo-classical model of consumer behavior to the analysis of time-of-use pricing of electricity. Emphasis is placed upon the relationship between partial elasticities, which can be accurately estimated from the first stage, and total elasticities, which can be estimated only by using less reliable information to estimate the second stage. Three functional forms are implemented with data from the Wisconsin Pricing Experiment. Results indicate that (1) the CES and generalized Leontief functional forms are preferred, (2) price elasticities vary substantially with price, and (3) peak and off-peak electricity are partial substitutes but total complements.

Consistency of residential customer response in time-of-use electricity pricing experiments☆

Abstract Using data from five experimental implementations of residential TOU rates in the United States, we estimate a consumer demand model for each experiment, and test the hypothesis that the elasticities of substitution are identical across experiments. The model is derived from an indirect utility function that permits the modelling to be separated into three stages. At each stage the parameters depend upon appliance stocks, housing characteristics, and climate. We do not reject the hypothesis that the parameters determining the elasticities of substitution are identical across experiments. This yields a generally applicable model for predicting residential response to TOU rates.

Economic Performance in Regulated and Unregulated Environments: A Comparison of U. S. and Canadian Railroads

An opportunity to compare economic performance under substantially different levels of regulation is afforded by the differences in the regulatory environments of U. S. and Canadian railroads. We find that the less regulated Canadian railroads have achieved far higher productivity growth than have U. S. railroads. Furthermore, in spite of natural conditions favoring U. S. railroads, Canadian railroads have achieved a higher level of productivity. These findings for the typical U. S. and Canadian railroad are borne out by similar results for specific railroads. Had U. S. railroad productivity grown at the Canadian rate, U. S. railroad costs would be several billion dollars less each year.

The Neoclassical Model of Consumer Demand with Identically Priced Commodities: An Application to Time-of-Use Electricity Pricing

Hicks theorem permits aggregation of commodities when their relative prices are fixed, but, contrary to a widely expressed view, it does not require that they be aggregated. Even where commodities have identical prices, all of their income elasticities and many of their price elasticities can be identified through econometric estimation. Our empirical illustration uses the generalized Leontief indirect utility function with data from the Wisconsin Residential Electricity Pricing Experiment. We model the demand for six commodities although there are only two unique prices.

A Bayesian Approach to Combining Conditional Demand and Engineering Models of Electricity Usage

Load forecasting models employed in the electric utility industry have become increas ingly dependent upon information about the electricity used by indivi dual appliances (i.e., end uses). Currently, information on appliance usage is obtained from two fundamentally different sources: (1) engi neering estimates and (2) conditional demand estimates. Bayesian anal ysis provides the means by which these two sources can be formally co mbined. Observed usage data (via the conditional demand approach) are used to modify a set of prior beliefs (the engineering approach), transforming them into a posterior distribution that describes appliance usage patterns and reflects the evidence provided by both approaches. Coauthors are Joseph A. Herriges, Kenneth E. Train, and Robert J. Windle.

A comparison of different methodologies in a case study of residential time-of-use electricity pricing: Cost–Benefit Analysis☆

Abstract Previous cost–benefit studies of residential time-of-use rates have relied on widely varying methods, many of which are incomplete. In this article, the authors develop a comprehensive methodology for analyzing residential time-of-use rates and contrast this methodology with the approaches previously taken. They apply this methodology to a study of residential time-of-use rates are not cost justified. Furthermore, they show the large errors that can result from using the incomplete approaches.