Against the Stand-Alone-Cost Test in U.S. Freight Rail Regulation

Abstract:     
The stand-alone-cost test has become an expensive, extensive, and time-consuming part of the regulatory practice of the U.S. Surface Transportation Board in the performance of its statutory duty to protect "captive shippers" from monopoly rail rates. Worse, a close examination of the history of its adoption and application suggests only a very tenuous connection with its claimed intellectual foundations, the classic works of Faulhaber (1975) and Baumol, Panzar, and Willig (1982). It is time to retire this tool and replace it with something simpler and more effective and transparent.

Number of Pages in PDF File: 16

Keywords: railroads, freight, regulation, Stand Alone Cost Test, Surface Transportation Board

JEL Classification: K23, L51, L92

working papers series