An empirical test of modal choice and allocative efficiency: Evidence from US coal transportation

This dissertation examines whether coal shippers use an allocatively efficient mix of transportation services. Attaining such efficiency is significant in part because cost of hauling coal constitutes a large share of its delivered price. Past research examining bulk transportation services prior to the enactment of pro-competitive policies reveals an inefficient allocation of such services because rates did not account for the full cost of transportation, especially for rail service along single provider routes. However, there is a dearth of research examining the allocative efficient use of transportation services following these policies.Coal shippers should benefit from the enactment of pro-competitive policies if rates fully reflect the opportunity cost of using different modes of transportation. However infrastructure and capacity constraints that limit modal choices might create a business environment that allows carriers to engage in the monopolistic pricing schemes that prevailed prior to the enactment of pro-competitive policies. Monopoly pricing allowed carriers to avoid charging high prices for low quality service. Past research observes that rail carriers were most likely to engage in this pricing behavior when shippers faced a lack of inter- or intra-modal competition. To capture the distortion in prices due to a lack of modal choice, this dissertation estimates a generalized transportation cost function for two groups of shippers. One group includes shippers with accessibility to all major transportation modes and the other includes shippers whose choices are limited to only rail and trucking services. Findings indicate that shippers with limited choice of transportation modes use an allocatively inefficient combination of transportation services, whereas shippers who have access to all major modes of transportation use an allocatively efficient combination.