A Hedonic Cost Function Approach to Estimating Railroad Costs

This study estimates a hedonic railroad cost function. It allows for differences in marginal costs across different outputs with different shipment characteristics. Cost and shipment data are included to examine the elasticity of costs with respect to two outputs - unit train output and way & through train output. We find differences across these two measures, which suggest the use of aggregate output measures may lead to significant bias in cost elasticities. Moreover, our approach also allows the effects of different shipment characteristics (e.g., shipment size, average length of haul) on marginal cost of each output to be considered.