The Applied Economics of Transport

Mark Taylor

• Publisher: Routledge
• Year: 2014
• Print ISBN: 9780367841928
• eBook ISBN: 9781317978527
• Topic: Business
• Subtopic: Business General
• Index: Business

This book provides an introduction and overview to nine applied financial studies on the theme of transport. The studies cover a wide range of topics, from value based trading of real assets in shipping, to the determinants of efficiency and productivity in European railways, to the market for used cars. The studies employ a variety of applied techniques across a range of countries, analysing a range of different modes of transport.

This book was originally published as a special issue of Applied Economics.

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The applied economics of transport: introduction and overview

Mark P. Taylor

Editor, Applied Economics Series

 

 

 

 

 

 

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We provide an introduction and overview to the nine applied studies making up this special theme on transport. The studies cover a wide range of national and regional experience and employ a variety of applied techniques.

 

 

This special theme on the economics of transport brings together nine applied studies covering a range of national and regional experience in the area of transport economics, using a variety of applied techniques.

In the first article, Sigbjorn Sodal, Steen Koekebakker and Roar Adland use a real options valuation model with stochastic freight rates to investigate market efficiency and the economics of switching between the dry bulk and the tanker markets in international shipping. A dry bulk carrier is replaced with a tanker when the expected net present value of such a switch is optimal from a real options-based decision rule. Depending on the development of the markets, a reversal may take place later. The cost and demand parameters upon which the decisions to switch are made, including the stochastic characteristics of freight rates, are estimated from an empirical analysis that is updated every week throughout a 12-year time period from 1993 to 2005. The authors conclude that the secondhand market for bulk ships seems to have been efficient most of these years in the sense that market switching usually did not pay off, with one major exception: it seemed profitable in expectation to leave the dry bulk market and enter the tanker market over a significant period of time, shortly after the millennium shift, and to return to dry bulk market about 3 years later.

Peter Schulze and Alexander Prinz, examine container trans-shipment at German ports using the Seasonal Autoregressive Integrated Moving Average (SARIMA) model and the Holt–Winters exponential smoothing approach. The models are designed especially to take account of the seasonal behaviour of the quarterly data used. The authors consider the dynamic development in this sector for the whole container throughput and also for the destinations Asia, Europe and North America, which are the world’s three main economic regions. The data runs from the first quarter of 1989 to the fourth quarter of 2006 and the authors provide detailed quarterly forecasts for the years 2007 and 2008.

According to forecasting error, measures such as Mean Square Error and Theil’s U, the SARIMA-approach yields slightly better values of modelling the container throughput than the exponential smoothing approach. The forecast results indicate further strong growth for German container handling in total, and especially for the destinations Asia and Europe. Only the container transshipment between Germany and North America shows rather small increases up to the end of 2008.

Next, Chen-Hsiu Laih and Kuan-Yu Chen develop the optimal step toll scheme which is levied to bulk ships for a queuing port. Bulk ships’ arrival times at the port are rationally dispersed after pricing this toll scheme. Consequently, the queuing time at the anchorage to all bulk ships is rationally decreased. Laih and Chen derive the bulk ships’ equilibrium arrival rate distributions during the queuing period before and after establishing the optimal step toll scheme. Their article also shows bulk ship owners’ decisions of arrival time adjustment under the optimal step toll scheme. Based on these results, the authors find some bulk ships that paid no toll under the optimal step toll scheme maintain the same arrival times at the anchorage as they did in the original nontoll equilibrium situation. New arrival times at the anchorage for other bulk ships that paid the optimal step toll are postponed when compared with their original arrival times in the nontoll equilibrium situation.

In their contribution, Antonio Couto and Daniel Graham evaluate the economic performance of European railways over the period 1972 to 1999. The cost structure of the railway industry is analysed using a stochastic frontier approach estimated within the framework of a translog cost system. The results confirm that European railways experience significant cost increases due to an inefficient behaviour. In contrast to the previous studies, however, the estimates indicate a much greater role for allocative rather than technical inefficiency. Overall, inefficiencies can essentially be explained by the supply of excess capacity and by the over-employment of labour inputs. Regarding productivity, it appears to be technological progress, and not levels of efficiency or scale economies, that provide the most convincing explanation for variance in growth rates within the sample.

Germà Bel and Xavier Fageda argue that, from a public interest perspective, there could be a justification for constraining market mechanisms with the aim of progressive redistribution. However, some policies might be based on selfish motivations of government agents. In their article, Bel and Fageda examine empirically whether the infrastructure policy is based only on public interest motivations or if it is also based on the private motivations of policy makers. In this way, Spanish infrastructure policy provides a useful policymaking field to test hypotheses concerning the behaviour of policy makers. The authors find some evidence regarding the strength of political motivations in explaining such behaviour. In fact, results from their analysis show that political motivations can eventually play a more relevant role than social welfare maximization.

Winand Emons and George Sheldon start by noting that the celebrated lemons model assumes that owners of used cars have an information advantage over potential buyers with respect to the quality of their vehicles. Owners of bad cars try to sell them to ill-informed buyers while owners of good cars hold on to theirs. Consequently, the quality of traded automobiles tends to be sub-average. In contrast to previous empirical work, the authors investigate both the behaviour of buyers and sellers, testing for adverse selection by sellers and for quality uncertainty among buyers with a sample consisting of all 1985 cars registered in the Swiss canton of Basle-City over the period 1985 to 1991. The results support both adverse selection and buyer uncertainty, suggesting that a lemons problem exists.

In their article, Anna Matas and Jose-Luis Raymond provide a comparison of different formulations for hedonic regression analysis in order to construct a quality-adjusted price index for the Spanish car market over the period 1981 to 2005. Specifically, the authors address the issue of instability of coefficients over time, and propose two alternative estimation procedures based, firstly, on a moving sample of observations and, secondly, on a moving average of estimated coefficients in single-period equations. The statistical tests applied support the proposed methodologies. Two conclusions can be emphasised ON empirical grounds. Firstly, the study concludes that, taking quality changes into account, car prices in Spain deflated by CPI declined by 40% between 1981 and 2005. This result is robust to the alternative estimation procedures employed in the study. Secondly, an analysis of sigma-convergence shows that for quality-adjusted prices a clear trend in σ-convergence emerges between 1986 and 1992, whereas such a trend does not exists for observed prices. The authors link this result to Spain’s integration into the European Community.

Peter Loeb, William Clarke and Richard Anderson develop a set of models for the determinants of automobile fatalities with particular attention devoted to the effects of increased cell phone usage. Cell phones have been associated with both life-taking and life-saving properties. However, prior statistical evaluations of the effects of cell phones have led to fragile results. The authors develop, in this article, econometric models using time series data, allowing for polynomial structures of the regressors. The models are evaluated with a set of specification error tests providing reliable estimates of the effects of the various policy and driving related variables evaluated. The statistical results indicate the effect of cell phones is nonmonotonic depending on the volume of phones in use, first having a net life-taking effect, then a net life-saving effect, finally followed with a net life-taking effect as the volume of phone use increases.

Finally, Juyi Shen applies two recent stated choice survey datasets of Japan to investigate the difference between the Latent Class Model (LCM) and the Mixed Logit Model (MLM) for transport mode choice. A detailed comparison is carried out, focusing on comparing the values of time savings, direct choice elasticities, predicted choice probabilities and prediction success indices. Furthermore, a test on nonnested model is also utilized to help determine which model is superior to another one. The results suggest that the LCM performs better than the MLM in both datasets.

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Value based trading of real assets in shipping under stochastic freight rates

Sigbjørn Sødal, Steen Koekebakker and Roar Adland

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The article uses a real options valuation model with stochastic freight rates to investigate market efficiency and the economics of switching between the dry bulk and the tanker markets in international shipping. A dry bulk carrier is replaced with a tanker when the expected net present value of such a switch is optimal from a real options based decision rule. Depending on the development of the markets a reversal may take place later. The cost and demand parameters upon which the decisions to switch are made, including the stochastic characteristics of freight rates, are estimated from an empirical analysis that is updated every week throughout a 12-year time period from 1993 to 2005. The second-hand market for bulk ships seems to have been efficient most of these years in the sense that market switching usually did not pay off, with one major exception: it seemed profitable in expectation to leave the dry bulk market and enter the tanker market over a significant period of time shortly after the millennium shift, and to return to the dry bulk market about three years later. These points in time corresponded with an unprecedented boom period in the tanker and dry bulk freight markets, respectively, and the result suggest that agents in the second-hand market were slow to adjust their expectations. In retrospect, such an investment policy also happened to be profitable compared to staying put in the tanker market, even after accounting for transaction costs.

I. Introduction

Timing of investment is a key to success in international shipping. This is because freight rates are sometimes very high for long enough periods of time to make a ship look more like a money machine than a normal production unit. In other periods they are close to or even below average long-run costs including normal returns to capital. In this article we apply a real options based model to study the optimal timing of investment in the sense of switching between the two main freight market segments in bulk shipping, namely that for tankers (the sea transport of crude oil and oil products) and dry bulk carriers (the sea transport of dry commodities such as iron ore, coal and grain). The model is calibrated to real world data on freight rates and second-hand ship values, and it seems to do a fairly good job in estimating when a switch from one market segment to the other could be profitable. The model and the empirical results are also used to discuss market efficiency.

The theoretical real options model used here is in the tradition of McDonald and Siegel (1986). The modelling of combined entry–exit decisions was introduced by Mossin (1968) and generalized in a modern real options framework in Brennan and Schwartz (1985) and Dixit (1989). Leahy (1993) showed how to interpret such models in a perfectly competitive market, which is our framework of analysis.¹

According to Koopmans (1939), the short-term supply curve in bulk shipping can be ...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• 1. The applied economics of transport: introduction and overview
• 2. Value based trading of real assets in shipping under stochastic freight rates
• 3. Forecasting container transshipment in Germany
• 4. Economics on the optimal port queuing pricing to bulk ships
• 5. The determinants of efficiency and productivity in European railways
• 6. Preventing competition because of ‘solidarity’: rhetoric and reality of airport investments in Spain
• 7. The market for used cars: new evidence of the lemons phenomenon
• 8. Hedonic prices for cars: an application to the Spanish car market, 1981–2005
• 9. The impact of cell phones on motor vehicle fatalities
• 10. Latent class model or mixed logit model? A comparison by transport mode choice data
• Index