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Abstract:
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A number of studies have found that postwar railroad productivity increased at a high rate both prior to and after deregulation. Important innovations, such as the steam locomotive, roller bearings, and loading truck trailers onto rail cars, likely resulted in productivity improvements. Simultaneously, though, railroads were under increasingly tight financial constraints with declining passenger traffic and an increase in competition from other modes of transportation, such as trucks. As a result, during this time period, railroads notably deferred investment in maintenance and in capital expenditures, to deal with these financial conditions and to paint a better picture of their financial position than reality. The end result of this period of deferred maintenance and tight financial positions was a shrinkage in the rail network. Not accounting for this deferral in maintenance overstates the short-term productivity and thus may misstate productivity improvements. In this paper, we use detailed firm-level and aggregate data to calculate the amount of deferred maintenance and update productivity estimates. We show a stairstep decline in maintenance of rail and ties that is triggered by recessions and consistent with a managerial response to financial conditions. In addition, we illustrate that accounting for maintenance deferral will lead to lower estimates of productivity improvements.
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