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1998 | Book

Setting the Scene Read chapter Read first chapter

The Economics of Railroad Safety

Author: Ian Savage

Publisher: Springer US

Book Series : Transportation Research, Economics and Policy

Included in: Professional Book Archive

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About this book

The American public has a fascination with railroad wrecks that goes back a long way. One hundred years ago, staged railroad accidents were popular events. At the Iowa State fair in 1896, 89,000 people paid $20 each, at current prices, to see two trains, throttles wide open, collide with each other. "Head-on Joe" Connolly made a business out of "cornfield meets" holding seventy-three events in thirty-six years. Picture books of train wrecks do good business presumably because a train wreck can guarantee a spectacular destruction of property without the messy loss of life associated with aircraft accidents. A "train wreck" has also entered the popular vocabulary in a most unusual way. When political manoeuvering leads to failure to pass the federal budget, and a shutdown is likely of government services, this is widely called a "train wreck. " In business and team sports, bumbling and lack of coordination leading to a spectacular and public failure to perform is also called "causing a train wreck. " A person or organization who is disorganized may be labelled a "train wreck. " It is therefore not surprising that the public perception of the safety of railroads centers on images of twisted metal and burning tank cars, and a general feeling that these events occur quite often. After a series of railroad accidents, such as occurred in the winter of 1996 or the summer of 1997, there are inevitable calls that government "should do something.

Table of Contents

Frontmatter
1. Setting the Scene
Abstract
To the lay person the image of railroad safety is of spectacular train wrecks and burning tank cars. However, the reality is much different. Just over 1,000 people were killed on the railroad in 1996 (table 1.1). Deaths due to grade-crossing accidents and trespassing account for ninety-two percent of all fatalities. In 1996 these two causes of death were of roughly equal magnitude. Preliminary figures for 1997 suggest that trespassing fatalities will exceed those at grade crossings for the first time in over half a century. Compared with these risks, highly-visible collisions and derailments accounted for the deaths of nine passengers and eleven employees.
Ian Savage
2. Historical Trends
Abstract
The previous chapter described contemporary safety. The next two chapters set the current performance in its historical context. This chapter describes trends in safety since statistics were first collected in 1890. The next chapter describes how public policy toward safety has responded to, and influenced, these trends.
Ian Savage
3. Public Policy
Abstract
This chapter provides a sketch of the development of public policy towards railroad safety. There are four key dates in this history: 1853, 1893, 1900–1910 and 1970. Readers seeking more details are directed to Robert Shaw’s 1978 book A History of Railroad Accidents, Safety Precautions and Operating Practice? which provides an encyclopedic review of the period prior to 1950. Another source is Robert Reed’s 1968 book Train Wrecks: A Pictorial History of Accidents on the Main Lin?. While primarily a picture book, it does provide a quick, readable and informative introduction to the subject.
Ian Savage
4. How Safe Are American Railroads?
Abstract
How safe are American Railroads? That question can only be answered by making comparisons with other types of risks. This chapter compares employee risks in railroads with those in other industries, passenger risks across modes of transportation, railroads versus other hazards of modern life, and United States to railroads to those in Canada and Great Britain.
Ian Savage
5. Risk Evaluation
Abstract
The previous chapter presented actuarial evidence on the risks of railroading and compared them with other hazards in society. However, no judgment was drawn as to whether these risks were “acceptable” or “too high.” The purpose of this chapter is to provide a bridge between the actuarial risks and understanding the public policy response to risk. While public policy is influenced by actuarial risk calculations, it is largely swayed by public opinion. There is now a large body of literature by psychologists concerning the way in which people form opinions about the magnitudes of risk, and whether they find the risks acceptable. There is also a literature by economists and political scientists on the appropriate public policy response to different levels of risks.
Ian Savage
6. The Story so Far
Abstract
This chapter provides a summary of the major issues so far. It identifies the hazards posed by railroads, assesses the casualty rates, looks at trends in those rates, makes comparisons with comparable hazards in other industries or elsewhere in society, and reflects on how people react to the hazards. The five major railroad hazards considered are (in no particular order): fatalities to highway users at grade crossings; trespasser fatalities, fatalities to train crews in collisions and derailments and during coupling operations; occupational injuries to maintenance employees; and releases of hazardous materials.
Ian Savage
7. Economic Theory of Bilateral Accidents
Abstract
Rail-highway grade-crossing collisions, trespassing fatalities, and occupational injuries are called bilateral accidents because the level of care taken by both the railroad and the other party to the accident affects the probability of occurrence. The analysis of these accidents is a three-step process. The first step is to determine the level of care, called due care, that should be taken by both parties so as to minimize social costs. The second step is to observe whether the parties will, in practice, select the appropriate levels of care. If they do not, the third step suggests legal rules of liability that provide both parties with the incentives to take due care. This chapter reviews the theory. Applications to grade-crossing collisions, trespasser fatalities and occupational injuries are in the following three chapters.
Ian Savage
8. Highway Grade Crossings
Abstract
Collisions between highway vehicles and trains are very costly. Calculations later in the chapter will suggest that a typical grade-crossing collision causes $450,000 of harm. The physics of a heavy railroad locomotive versus an automobile means that highway users suffer more than ninety-five percent of the harm. The probability of a collision can be affected by the actions taken by both the highway user and the “railroad.” The highway user affects the probability by their conduct in checking whether a train is approaching before using a crossing. The “railroad” affects the probability by deciding on the type of warning signs and devices that are installed at individual crossings.
Ian Savage
9. Trespassers
Abstract
Preliminary data for 1997 suggests that trespassing has become the leading source of death on the railroads. The number of annual trespassing victims is greater than the number of grade-crossing fatalities for the first time in over half a century. Trespassing is primarily a problem in built-up areas, and mostly involves single adult males who are under the influence of alcohol.
Ian Savage
10. Occupational Injuries
Abstract
This chapter considers the economics of occupational injuries that do not occur during train operations. These comprise a quarter of employee fatalities and eighty-five percent of employee injuries. They typically occur during maintenance of track, in railroad workshops, and when employees slip and fall. Employee fatalities and injuries that result from operational accidents are considered later in the book.
Ian Savage
11. Benchmark Levels of Operational Safety
Abstract
The remainder of the book deals with operational safety. That is the prevention of collisions and derailments. This chapter discusses how much safety should be provided. It also introduces five possible market failures which may result in railroads providing non-optimal levels of safety. Subsequent chapters will investigate whether railroads are susceptible to these failures, and the possible public policy responses to the failures.
Ian Savage
12. Market Power
Abstract
The benchmark models assume that price equals marginal cost. In reality, this type of pricing is not commercially tenable. Railroads are characterized by economies of density at the route level because of high fixed costs of the infrastructure and relatively low marginal costs (Keeler, 1983). In 1996, the Class I railroads spent about $12 billion on running the trains, $14.6 billion on administration and maintaining track and equipment, and $6.1 billion on capital investment (AAR, 1997). Therefore, perhaps only a third of the total costs vary in the short run with changes in levels of traffic. Pricing at marginal cost would lead to financial losses. Railroads have to price above marginal cost simply to stay in business. However, it is possible that railroads might be able to price above average cost, if they can erect barriers to entry to stop new firms entering the market in response to the earning of positive profits. Firms that are able to do so are said to have market power.
Ian Savage
13. Imperfect Information
Abstract
A welfare-maximizing decision by individual customers as to whether to consume transportation, and which railroad or mode they wish to patronize presupposes that they are fully informed about the safety choices that are available. If customers misperceive the preventive efforts made by railroads and other transportation firms, they may make mistaken demand decisions. Some customers may be scared away from using rail transportation on the mistaken belief that it is less safe than it really is. Others may mistakenly patronize a firm or mode that is less safe than they would desire. Because customers do not accurately express their desires for safety preferences in their demand decisions, railroads will be sent the wrong signals about the preferences of customers. It is therefore likely that the “wrong” amount and variety of safety will be offered in the marketplace.
Ian Savage
14. Customer Rationality
Abstract
The benchmark models assume that fully-informed customers will make rational choices consistent with their desires and economic incentives. For freight transportation, it is reasonable to suppose that shipping managers will act in a rational way. They will compare the prices quoted by the various railroads and different modes of transportation, assess the probability that their goods will be lost or damaged in transit, and make an informed and calculating choice. They will be making decisions in a calm and dispassionate way because the consequences of accidents, to the shipper at least, are just financial in the form of property damage and disrupted production schedules.
Ian Savage
15. Railroad Myopia
Abstract
The nature of the market for safety makes myopic behavior possible. The costs of preventive effort are borne in the present, whereas accident costs including liability to customers and bystanders occur at random times in the future.
Ian Savage
16. Externalities
Abstract
The benchmark model requires the railroad to be legally liable to compensate bystanders for harm caused by railroad accidents. The market failure, when this does not occur can be easily shown. Absent compensation, the social-welfare maximizing monopolist will set the level of preventive effort using the rule: The marginal cost of preventive effort is greater than in the benchmark model. This is because the railroad no longer bears the negative marginal cost of compensation to bystanders. This marginal function is negative because an increase in preventive efforts will reduce the number of accidents and hence the compensation payments to bystanders. Consequently, for a constant level of output, the railroad will undersupply preventive effort.
Ian Savage
17. Non-Regulatory Responses
Abstract
There are a variety of policy responses that might be deployed to ameliorate the five market failures. One of these responses, legal liability, has already been introduced. There are other responses that have yet to be described: anti-trust powers, information provision, insurance requirements and safety regulation. These responses are shown on the vertical axis of the matrix in Table 17.1. Along the horizontal axis are the five market failures. A “X” in a cell of the matrix indicates which market failures can be ameliorated with each policy response.
Ian Savage
18. Federal Safety Regulations
Abstract
This chapter provides a summary of the federal safety regulations. The interested reader is also directed to appendix A which provides more detail. To facilitate the discussion, the regulations are divided into five general categories: those supportive of other policy responses to safety regulation, those that deal with minimizing externalities, those that are necessary to deal with civil liberties issues, those that contain specifications for equipment design or operating practices, and those that deal with monitoring and enforcement. A matrix showing a division of the current regulations into the five categories is shown in table 18.1. In parentheses after the name of each area of regulation is its relevant part number within Title 49 of the United States Code of Federal Regulations (CFR).
Ian Savage
19. Evaluation of Regulations
Abstract
How does one evaluate the “success” of a safety regulation? There would seem to be three criteria. The first is that the regulation tackles a genuine market failure. The second is that the written standards are set at appropriate levels to achieve the minimum acceptable benchmark level of safety. The term “minimum” is used here to recognize that in a vertically-differentiated marketplace, some firms will elect to supply a higher quality service to appeal to customers who have a high taste for safety. The regulations will need to be written to be consistent with the tastes of those customers who prefer a lower level of safety. The third criterion is that the monitoring and enforcement strategy achieves compliance at the minimum cost to the government and the firms that are regulated. A regulation will be a “failure” if there are deficiencies in any or all of these three criteria.
Ian Savage
20. A New Era for Safety Regulation
Abstract
This chapter proposes a new and improved strategy for safety regulation. One that would overcome the problems with the current method of regulation. In defining a new strategy, one must first ask what is the ultimate objective? Excluding concerns about customer rationality, the main objective for deploying safety regulation in the railroad industry is to counter myopia. Myopia may stem from inexperience or from unscrupulous intent. The two causes of myopia call for quite different responses by the government. Safety regulations will therefore have to comprise both an educational system to ensure that new inexperienced railroads do not select lower levels of safety than they should, and a delinquency system to identify and punish railroads who are engaging in unscrupulous myopic behavior.
Ian Savage
21. The Way Forward
Abstract
Grade crossing collisions cause almost half of all railroad fatalities. While there have been great improvements in safety at grade crossings subsequent to a government funding initiative in 1974, there are still considerable problems.
Ian Savage
Backmatter
Metadata
Title
The Economics of Railroad Safety
Author
Ian Savage
Copyright Year
1998
Publisher
Springer US
Electronic ISBN
978-1-4615-5571-1
Print ISBN
978-1-4613-7548-7
DOI
https://doi.org/10.1007/978-1-4615-5571-1