Q2 Z2,(Q2) Z2(Q2) - Institute for Water Resources - U.S. Army

The effects of two types of classification are examined: the size of
firm and the region in which the railroad operates. The regional
classification is used to account for spatial price differences, and
regional differences in physical operating conditions. Due to the
small sample size, shift parameters are used to take account of re-
gional and size differences. Covariance analysis is then used to
examine the influence of these variables. The hypotheses tested are
that the cost-output relationships are significantly affected by both
the size of firm arid the region of operation.
. .
Two types of cost behavior are observed in Borts results; each is
associated with different regions in Borts classification. "It was
found that long-run increasing costs prevailed only in the Eastern re-
gion, while long-run decreasing or constant costs occurred in the South
and West." (p. 116). According to Borts, this evidence on regional
differences suggests that different regulatory policies should be de-
signed to meet the varying conditions among regions. In the East, .
” . . . the question of basing charges on identifiable cost can be
reopened, once it is possible to ignore the problem of allocating in-
direct expenses . . . [In the West and South] the evidence indicates
a continuation of the historical problems raised by overbuilding, be-
cause of the possibility of continued increasing returns." (p. 128).
In a study of railroad cost in Canada, Stenason and Bandeen
provide a critique of current cost finding techniques of the Interstate
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Commerce Commission. 5 The authors present an alternative costing
system used by the Canadian National Railroad and the Canadian Pacific
Railroad Company.
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