A Derived Demand Function for Freight Transportation

• Published in: The review of economics and statistics Vol. 62; no. 3; pp. 432 - 441
• Main Authors: Friedlaender, Ann F., Spady, Richard H.
• Format: Journal Article
• Language: English
• Published: Cambridge, Mass North-Holland Publishing Company 01.08.1980; Harvard University Press, etc; MIT Press Journals, The
• Subjects: Commodities; Cost estimates; Cost functions; Demand curves; Economic models; Elasticity of demand; Freight; Freight forwarding; Functions; Price elasticity; Price elasticity of demand; Shipments; Statistical analysis; Transportation; Transportation costs; Transportation demand; Trucking; Trucking industry
• ISSN: 0034-6535; 1530-9142
• DOI: 10.2307/1927111

An attempt is made to improve upon existing specifications and estimations of freight demand in 2 important ways. First, transportation is treated as an input in the production process, and the derived input demand equations for rail and trucking associated with a general translog cost function are estimated. Second, it is recognized that rates and shipment characteristics are jointly dependent and this interdependence is taken into account in estimating these demand functions. The econometric estimates of the derived demand equations were generally robust and support the desirability of this approach, indicating that previous attempts to estimate aggregate transportation demand functions have suffered from specification error and resulting biases in the coefficients. In terms of policy, 2 tentative conclusions emerge from the empirical findings. First, at least with respect to less than truck load shipments, rail and truck transportation appear to be largely independent. Second, the estimated own price elasticities of demand for rail services are sufficiently high to indicate that the railroads might not benefit from blanket rate increases, but could benefit instead from selective rate cutting.