The marginal cost of railway track renewals: a sample selection modelling approach

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Mats Andersson
Andrew Smith
Phillip Wheat

Economic theory advocates marginal cost pricing for efficient utilisation of transport infrastructure. A growing body of literature has emerged on the issue of 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 work with disaggregate (track-section) data, including the zero observations, but apply censored and sample selection regression models to overcome the bias that would result from estimation using OLS. 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. Our paper is the first paper in the literature 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.

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