Wesley W. Wilson

Cost Savings and Productivity in the Railroad Industry

Railroad deregulation has had tremendous effects on the level of costs and productivity gains. I use an unbalanced panel of railroads from 1978 through 1989 to estimate a translog cost function. I find that initially cost savings from partial deregulation were modest. However, by 1989, I find that cost savings were tremendous, with costs being up to 40 percent lower than they would have been under regulation. I also find that while initial effects of deregulation on productivity gains were large, these effects have fallen through time, and currently are comparable to pre-deregulation levels.

Port Efficiency and Trade Flows

Growing international trade and increasing congestion focus attention on trade facilitation. Ocean ports are a central and necessary component in facilitating trade. Yet, there is only limited comprehensive information available on the efficiency of ports or evidence of the effect of port efficiency on trade. We develop and apply a straightforward approach to estimate port efficiency. The approach uses detailed data on US imports and associated import costs, yielding estimates across ports, products, and time. These measures are incorporated into a gravity trade model where we estimate that improved port efficiency significantly increases trade volumes.

Monte Carlo analysis of SP-off-RP data

Abstract SP-off-RP questions are a recent innovation in choice modelling that solicits information from respondents in a different way than standard stated-preference (SP) experiments. In particular, the alternatives and choice of a respondent in a real-world setting are observed, and the respondent is asked whether he/she would choose the same alternative or switch to another alternative if the attributes of the chosen alternative were less desirable in ways specified by the researcher and/or the attributes of non-chosen alternatives were more desirable in specified ways. This construction, called “stated-preference off revealed-preference” (SP-off-RP), is intended to increase the realism of the stated-preference task, relative to standard SP exercises, but creates endogeneity. In this paper, we present a series of Monte Carlo exercises that explore estimation on this type of data, using an estimator that accounts for the endogeneity. The results indicate that, when the variance in the processing error by respondents is the same for SP-off-RP data as for standard SP data, the two solicitation methods provide about the same level of efficiency in estimation, even though the SP-off-RP data contain endogeneity that the estimator must handle while the SP data do not involve endogeneity. For both solicitation methods, efficiency rises, as expected, as the variance of the processing error decreases. These results imply that, if respondents are able to answer SP-off-RP questions more accurately than standard SP questions (and hence have lower variance of processing error), then SP-off-RP data are more efficient that standard SP data. This implication needs to be viewed cautiously, since (i) the actual processing error for each solicitation method is not measured in the current study, and (ii) the results are for the specific data generation processes that are used in the Monte Carlo exercises.

DEREGULATION, MERGERS, AND EMPLOYMENT IN THE RAILROAD INDUSTRY

Since 1978, there have been dramatic changes in the railroad industry with partial deregulation, a massive consolidation of firms, a reduction in the size of the rail network, and a dramatic reduction in employment. In this paper, we focus on the effects of deregulation, a change in the traffic characteristics, miles of road, and consolidation, on employment by Class I railroads. We develop and estimate a model that allows these effects to be identified, finding that the largest employment declines emanate from the direct effect of partial deregulation, while smaller, but still large, employment declines emanate from mergers and changes in traffic mix.

Deregulation, rate incentives, and efficiency in the railroad market

A number of important innovations and events over the last 25 years have reshaped railroad marketing and have led to dramatically lower rates. Many of these innovations have been developed for and used exclusively for agricultural markets. This paper documents these innovations and examines the behavior of rail rates from 1972-1995, using a nonlinear regulatory adjustment mechanism to represent the effects of partial deregulation. The focus is on rate changes that have occurred under the new regulatory regime introduced by passage of the Staggers Rail Act in 1980. The papers econometric analysis applies to the five leading agricultural commodities shipped by rail which account for over 90% of agricultural movements. The rates for all five commodities have fallen dramatically over time, but there are differences across the commodities in magnitude. The effect of partial deregulation on rates and produtivity, while large, dissipates over time.

Telecommunications deregulation and subadditive costs: Are local telephone monopolies unnatural?

Abstract In early 1996, Congress passed the Telecommunications Law, providing the foundation for the opening of regulated local telephone monopolies to competition. One important premise for introducing competition into local telephone markets is that these markets are not (or are no longer) natural monopolies. This paper reexamines the natural monopoly issue using a cost function that controls for firm heterogeneity. Our subadditivity tests suggest that Local Exchange Carriers’ (LECs) costs are subadditive when there are controls for unobserved heterogeneity, suggesting that local telephone markets are natural monopoly markets.

LEGISLATED MARKET DOMINANCE IN RAILROAD MARKETS.

Abstract Under current regulatory rules in the railroad industry, railroad rates are not subject to reasonableness proceedings unless the Surface Transportation Board of the Department of Transportation finds that the railroad is “market dominant.” A theoretical model of railroad pricing is used here to examine and interpret the regulatory rules defining market dominance. Railroad rates in a market are either market dominant, constrained market dominant, or not market dominant. The empirical analysis evaluates the effects of competitive pressures on rates. Competition is found to reduce grain rates by up to 40 percent and service differentials across competing modes explain only a portion of observed rate levels.

The growth and patterns of international trade

Over the last 40 years, there has been an unprecedented growth in trade amongst countries, and the growth in trade shows no sign of slowing down. The increases in trade have put tremendous pressure on the maritime and port industries, and these industries have responded with innovations, investment, and greater productivity. International trade and maritime trade are synonyms, and an understanding of the determinants of international trade is central to understanding maritime trade. In this paper, we provide a review of the international trade literature with a focus on the determinants of trade and the evolution of trade modeling. We then present a broad overview of the extent and growth of trade in the context of primary determinants. The basic results are: (1) Trade is growing at a phenomenal rate; (2) Trade is dominated by relatively few countries who tend to remain dominant; (3) While trade of all products is growing, there are large differences in the growth rates, but yet, there is stability in the relative sizes of product markets; and (4) Over the last 40 years, trade has changed from major flows between the US and Europe to major flows between Asia and the US.

Spatial Competition, Pricing, and Market Power in Transportation: A Dominant Firm Model

ABSTRACT Transport firms compete over space. We develop a dominant firm model of transport services wherein one firm (the railroad) has market power, but competes in space with a competitive alternative (truck‐barge). When constrained, the dominant firm prices to “beat the competition”, which impedes efficiency when demand has some elasticity. We extend the basic model in a number of directions that include the relationship between monopoly prices and the generalized concavity of the shipper demand functions, the effects of multiple terminal markets, the role of joint production (fronthaul–backhaul markets), and the effects of capacity constraints.

Model of Spatial Market Areas and Transportation Demand

A model of transportation demand and the interrelated supply decisions of agricultural shippers is derived over a geographic space. These shippers use prices to procure grain and to make output, mode, and market decisions. Each decision is affected by the characteristics of the region and the level of spatial competition between the shipper and its rivals. All of these factors are integrated into the model of derived demand and spatial competition. The model is applied to data that represent barge elevators on the upper Mississippi and Illinois Rivers to estimate transportation demands and gathering areas. The results provide demand elasticity estimates for annual volumes between -1.4 and -1.9, which are sizably larger than previous estimates of similar traffic. The results also indicate that inbound transportation rates to the barge shipper as well as distance to the nearest competitor have a significant influence on annual volumes. A second model, explaining the size of the market areas of elevators, is also estimated. The rates of alternative modes that compete for barge traffic as well as distance to the nearest competitor influence market areas. The results provide for a strong argument that transportation demands are elastic and that spatial market areas vary substantially with transportation rates.