3 - An econometric analysis of the cost and production structure of the trucking industry

Summary

An understanding of the structure of technology and the cost-generation process is a necessary step in the analysis of many policy issues. Questions of regulation, deregulation, merger, pricing, and investment all require extensive information on the affected firms' cost and production functions. The recent explosion of interest in issues of deregulation of transportation industries has generated a number of cost analyses of railroads, airlines, and, most recently, motor carriers. The purpose of this chapter is to help further sharpen the emerging image that studies of the motor carrier industry are providing. Our approach will involve emphasizing the heterogeneity of motor carrier technology, the source of the heterogeneity being the spatial context (or environment) within which production takes place. Our main goal is to find a unified and convenient characterization of the subtechnologies, with special emphasis on the role of the spatial environment in generating the subtechnologies.

We proceed as follows. We first pose a family of technologies indexed by a vector of attributes reflecting spatial and market characteristics. We shall see that one way to think of this vector is as a vector of lumpy inputs, some of which may or may not have meaningful notions of markets in which to purchase the lumpy inputs. We then proceed to consider the attribute-indexed cost function dual to the family of technologies.