A SURVEY OF RECENT DEVELOPMENTS IN TRANSPORTATION COST FUNCTION RESEARCH

Abstract

The paper reviews the origins of empirical cost analysis in transportation but concentrates on developments over the last 15 years or so. Aggregate cost functions are studied to infer broad cost characteristics of the industry, notably the presence or absence of economies of scale or density. Recently the calculation of scale economies is being reconsidered. If there are interactions among output categories and/or output attributes associated with firm size, there may be cost advantages to large firms but not because of scale per se. A second purpose of cost functions is to make efficiency comparisons across firms and/or over time. The cost function (or productivity index) is decomposed to identify the influence of scale, mix of outputs, output attributes, and characteristics of the market environment, to reveal residual efficiency differences. Other recent developments reviewed include: (1) the use of flexible functional forms (e.g., the translog); (2) output measurement, output attributes, and hedonic functions; (3) the treatment of fixed inputs in short run cost functions; and (4) the use of frontier estimation techniques.

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