Estimating the marginal cost of railway track renewals using corner solution models

Abstract

Economic theory advocates marginal cost pricing for efficient utilisation of transport infrastructure. A growing body of literature has emerged on the issue of rail marginal infrastructure wear and tear costs, but the majority of the work is focused on costs for infrastructure maintenance. Railway track renewals are a substantial part of an infrastructure manager's budget, but in disaggregated statistical analyses they cause problems for traditional regression models since there is a piling up of values of the dependent variable at zero. Previous econometric work has sought to circumvent the problem by aggregation in some way. In this paper we instead apply corner solution models to disaggregate (tracksection) data, including the zero observations. We derive track renewal cost elasticities with respect to traffic volumes and in turn marginal renewal costs using Swedish railway renewal data over the period 1999 to 2009. This paper is the first attempt in the literature to apply corner solution models, and in particular the two-part model, to disaggregate renewal cost data in railways. It is also the first paper that we are aware of to report usage elasticities specifically for renewal costs and therefore adds important new evidence to the previous literature where there is a paucity of studies on renewals and considerable uncertainty over the effects of rail traffic on renewal costs. In the Swedish context, we find that the inclusion of marginal track renewal costs in the track access pricing regime, which currently only reflects marginal maintenance costs, would add substantially to the existing track access charge. This change would also increase the cost recovery ratio of the Swedish infrastructure manager, thus meeting a policy objective of government.

Marginal railway track renewal costs: A survival data approach

“…Andersson (2006) applies pooled ordinary least squares (POLS) to track section cost data and finds that the increase in weighted marginal cost, when renewals are added to maintenance costs, is SEK 0.0024 per gross tonne kilometre. Andersson et al (2012) estimates the weighted marginal cost to SEK 0.007 per gross tonne kilometre. One has to be aware of the different cost bases used in this study, Andersson (2006), and Andersson et al (2012) respectively.…”

“…Andersson et al (2012) estimates the weighted marginal cost to SEK 0.007 per gross tonne kilometre. One has to be aware of the different cost bases used in this study, Andersson (2006), and Andersson et al (2012) respectively. In this study and in the study by Andersson et al (2012), track renewal costs are used, while Andersson (2006) use all renewal costs.…”

“…One has to be aware of the different cost bases used in this study, Andersson (2006), and Andersson et al (2012) respectively. In this study and in the study by Andersson et al (2012), track renewal costs are used, while Andersson (2006) use all renewal costs. Although this study and Andersson et al (2012) use the same cost base, the precision in using an average cost estimate as we do is not as good as observation specific costs used in Andersson et al (2012).…”

“…As rail renewals have long life cycles (are rare events), the lack of comprehensive time-series data questions the adequacy of applying traditional regression analysis to the renewal problem. An alternative econometric approach to model rail renewal costs is presented in Andersson et al (2012). They use models for censored and truncated data to model the renewal cost problem.…”

Scale, quality and efficiency in road maintenance: Evidence for English local authorities

“…Including them in levels 2 The use of '' refers to the observation that many published efficiency studies and studies that have been used for regulatory determinations have less or an equal number of explanatory variables e.g. see Andersson et al (2012), Smith et al (2010) and Smith and Wheat (2012).…”