Safety in Numbers? An Analysis of Market Concentration and Safety in the Commercial Railroad Industry

41 Pages Posted: 29 Jul 2017

See all articles by Michael Shashoua

Michael Shashoua

Rice University - Department of Economics, Students

Shrihari Sridhar

Texas A&M University - Department of Marketing

Vikas Mittal

Rice University

Date Written: July 25, 2017

Abstract

In this paper, we examine the relationship between market concentration and safety incidents in the freight railroad industry in the United States. We measure safety incidents as the number of accidents and market concentration as the Herfindahl Hirschman Index. We test the model in the context of the commercial railroad industry, using a comprehensive data set spanning 40 years. We systematically control for correlated unobservables, and the results consistently indicate that a 1% increase in market concentration yields an approximately .4% decrease in the number of accidents. These results are robust to different measures of concentration, various time aggregations, and numerous model specifications. Furthermore, using bootstrapping techniques, we show that the relationship between safety and market concentration is mediated by the level of investment in capital expenditures, the total number of employee hours, and the amount of freight switching between railroad companies. An important implication of this study is that mergers may provide substantial value by reducing the number of accidents. These findings are relevant for firms, regulators, and consumers across all industries that suffer from safety incidents.

Keywords: safety; accidents; market concentration; HHI; quasi-experimental; mediators

Suggested Citation

Shashoua, Michael and Sridhar, Shrihari and Mittal, Vikas, Safety in Numbers? An Analysis of Market Concentration and Safety in the Commercial Railroad Industry (July 25, 2017). Mays Business School Research Paper No. 3009220. Available at SSRN: https://ssrn.com/abstract=3009220 or http://dx.doi.org/10.2139/ssrn.3009220

Michael Shashoua

Rice University - Department of Economics, Students ( email )

Houston, TX 77005
United States

Shrihari Sridhar

Texas A&M University - Department of Marketing ( email )

430 Wehner
College Station, TX 77843-4218
United States

HOME PAGE: http://mays.tamu.edu/directory/shriharisridhar/

Vikas Mittal (Contact Author)

Rice University ( email )

6100 South Main Street
250 McNair
Houston, TX 77005-1892
United States

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