Can Two Econ Profs from Chicago Take America s Railroads Back to the Future?

That s the attitude of Kevin Murphy and Mark Zmijewski, economic professors from the University of Chicago, who are trying to modernize the American freight rail industry. They re authors of a petition to the Surface Transportation Board (STB), urging the board to change the way it calculates the financial health of the country s railroads. The methods the STB uses are out of date and bad for business. 

The STB regulates the railroads under a model called revenue adequacy, which arbitrarily sets limits on the rail industry s rates. Namely, the Interstate Commerce Commission defined revenue adequacy as a rate-of-return on investment between 7 and 10 percent at a time (1979) when markets were being abused and competition was ineffective. Because free-market forces had been compromised, the government needed to step in, like when it breaks up a monopoly. 

via townhall.com