For much of the 20th century, federal regulators tightly controlled the railroad industry, including rail investment and prices. By the 1970s, several major carriers were on the verge of bankruptcy, and lawmakers, facing the prospect of costly bailouts, acted boldly and repealed onerous regulations, allowing market forces to re-energize the industry. In the 40+ years since, industry productivity has more than doubled, investment has surged, and inflation-adjusted rail rates have decreased. However, the success of the industry is now in jeopardy, as regulators, swayed by vested interest groups, ponder new rules that would impact railroad profitability and increase price regulation. This study reviews four of the proposed rules by the Surface Transportation Board and discusses rent-seeking as a major driving factor in the resurgence of regulations. We find no evidence of a market failure to justify reregulating the industry and reversing the gains made in the last four decades. We do, however, find that imposition of these rules will cause irreparable harm to capital formation, the environment, job growth, and consumer welfare.
The study was coauthored with Krisztina Pusok and filed with the Surface Transportation Board. You can read the entire study here.