Safety in Numbers? An Analysis of Market Concentration and Safety in the Commercial Railroad Industry
41 Pages Posted: 29 Jul 2017
Date Written: July 25, 2017
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
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