Revenue Adequacy: The Good, the Bad and the Ugly

55 Pages Posted: 3 Jul 2014

See all articles by Jeffrey Thomas Macher

Jeffrey Thomas Macher

Georgetown University - McDonough School of Business - Strategy, Economics and Policy

John W. Mayo

Georgetown University - Department of Strategy/Economics/Ethics/Public Policy

Lee Pinkowitz

Georgetown University - Department of Finance

Date Written: July 1, 2014

Abstract

This paper examines the concept of revenue adequacy, a benchmark of United States railroad firms' financial performance calculated annually by regulatory oversight bodies. The paper addresses questions around the origins, measurement, informational provisions, value and policy benefits and costs of revenue adequacy. An examination of the historical origins, measurement, and informational provisions of revenue adequacy generates insights into the motivations for and limitations of this concept. A financial benchmarking exercise assesses revenue adequacy in the rail industry relative to both a narrowly defined set of comparable industries and a broader set of publicly-traded non-financial companies operating in the U.S, and indicates little differentiates railroads from these comparison sets over the past dozen years. A nonfinancial examination assesses whether the railroad industry has made continued rail transportation system improvements given its regulatory governance structure, and concludes that significant strides toward the goal of achieving a “safe, adequate, economical, efficient, and financially stable Rail transportation system” as established in the Staggers Rail Act have been made. The paper concludes with policy reflections that identify prospective good, bad and ugly applications of revenue adequacy.

Keywords: Railroads, Revenue Adequacy, Regulation, Deregulation

Suggested Citation

Macher, Jeffrey Thomas and Mayo, John W. and Pinkowitz, Lee Foster, Revenue Adequacy: The Good, the Bad and the Ugly (July 1, 2014). Available at SSRN: https://ssrn.com/abstract=2461424 or http://dx.doi.org/10.2139/ssrn.2461424

Jeffrey Thomas Macher

Georgetown University - McDonough School of Business - Strategy, Economics and Policy ( email )

335 Hariri Building
Washington, DC 20057
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202-687-4793 (Phone)

John W. Mayo (Contact Author)

Georgetown University - Department of Strategy/Economics/Ethics/Public Policy ( email )

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(202) 687-6972 (Phone)
(202) 687-7310 (Fax)

Lee Foster Pinkowitz

Georgetown University - Department of Finance ( email )

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Washington, DC 20057
United States
202-687-2689 (Phone)
202-687-4031 (Fax)

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