Measuring Quantity-Quality Trade-Offs in Regulation: The Brazilian Freight Railways Case

20 Pages Posted: 4 Mar 2007

See all articles by Antonio Estache

Antonio Estache

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES)

Sergio Perelman

University of Liege - Department of Economics

Lourdes Trujillo

Departamento de Analisis Economico Aplicado; University College of London (UCL)

Abstract

The quantity vs. quality trade-offs in network industries are well known from the theoretical literature and have been the subject of many empirical assessments, although mostly for the telecoms and energy sectors. The purpose of this paper is to expand the evidence for the railway sector by documenting the importance of this trade-off in the context of the Brazilian freight railway industry reform, the first example of a railway sector in which tariff revisions are subject to joint output and quality performance indicators. The analysis is based on the calculation of the Malmquist productivity index proposed by Fare et al. (1995). The decomposable nature of this total factor productivity (TFP) index reveals the prevalence of quantity-quality trade-offs up to the end of the reform period, but a positive correlation between them during the period just afterwards. This type of information would certainly be useful for regulation purposes, particularly as an alternative way of taking into account quality without introducing complex, and very often ineffective, penalty schemes.

Suggested Citation

Estache, Antonio and Perelman, Sergio and Trujillo-Castellano, Lourdes, Measuring Quantity-Quality Trade-Offs in Regulation: The Brazilian Freight Railways Case. Annals of Public and Cooperative Economics, Vol. 78, No. 1, pp. 1-20, March 2007. Available at SSRN: https://ssrn.com/abstract=968025 or http://dx.doi.org/10.1111/j.1467-8292.2007.00325.x

Antonio Estache

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES) ( email )

Ave. Franklin D Roosevelt, 50 - C.P. 114
Brussels, B-1050
Belgium
32 (0)2 6503838 (Phone)

Sergio Perelman (Contact Author)

University of Liege - Department of Economics ( email )

7 Boulevard du Rectorat
Batiment B31
4000 Liege
Belgium
+32 4 156 3098 (Phone)
+32 4 156 2958 (Fax)

Lourdes Trujillo-Castellano

Departamento de Analisis Economico Aplicado ( email )

Universidad de Las Palmas de Gran Canaria
Campus de Tafira
Las Palmas de Gran Canaria, Las Palmas 35017
Spain

University College of London (UCL)

Chadwick Building
Gower Street
London, London WC1E 6
United Kingdom

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