The marginal cost of reinvestments in Sweden’s railway network

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This study provides new estimates of the marginal cost of railway reinvestments using Swedish data on reinvestment costs, traffic, and other railway network characteristics for the period 1999–2014.

 The empirical analysis is based on a two-part model approach, where several factors can explain the reinvestment decision in the first part of the model and the size of the reinvestment in the second part.

We find a marginal cost estimate of SEK 0.03 per gross ton-kilometers for reinvestments, which is significantly higher than previous estimates. There are two main reasons for this difference. First, the present analysis is based on a more comprehensive reinvestment cost definition that now also includes signalling, electricity installations, etc. Secondly, it has now also become feasible to add information about station sections.

 Moreover, we test whether it is appropriate to add new explanatory variables or replace existing variables to better understand what drives decisions to undertake track renewals and the costs for doing so. The results appear to be sensitive in terms of reported errors and cumulative tonnage density, which means that inclusion of these variables better explains the variation in reinvestment decision and the size of the reinvestment. However, these results must be interpreted with caution due to the shorter period of observation and the limited number of track sections that are observed.

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