Optimal Freight Service Quality and Implications for Economic Analysis, Inventory-Theoretic Shipper Cost Functions and Run-Through Train Operations
Brown, David Girard
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https://hdl.handle.net/2142/69974
Description
Title
Optimal Freight Service Quality and Implications for Economic Analysis, Inventory-Theoretic Shipper Cost Functions and Run-Through Train Operations
Author(s)
Brown, David Girard
Issue Date
1988
Doctoral Committee Chair(s)
Boyce, David E.
Department of Study
Civil Engineering
Discipline
Civil Engineering
Degree Granting Institution
University of Illinois at Urbana-Champaign
Degree Name
Ph.D.
Degree Level
Dissertation
Keyword(s)
Economics, General
Engineering, Civil
Transportation
Abstract
The provision of freight transportation requires the consumption of both shipper (consumer) and carrier (producer) resources. The quality of freight service impacts the amounts, and hence costs, of both sets of resources. Optimal freight service quality (for a given volume level) minimizes the sum of carrier and relevant shipper costs (termed "full cost"). The shipper cost is dominated by inventory cost elements and does not include payments to the carrier. This social efficiency criterion, termed "quality efficiency", is addressed via three research foci.
First, a microeconomic model of freight service quality is constructed which shows quality efficiency to be profit-maximizing for the carrier. It is demonstrated that microeconomic analysis based on carrier cost and freight rate is inappropriate, when service quality is relevant. The appropriate cost and price constructions are then developed (full cost and full price). Implications of freight rate regulation are also examined.
Second, an inventory-theoretic shipper cost model is developed, analyzed, and compared to other alternatives. Potential model misspecification, in the context of transportation quality choice problems (such as quality efficiency and carrier choice), is emphasized. Simple closed shipper cost functions are presented, which closely approximate the cost model.
Third, an engineering model of run-through train operations is developed, to illustrate and apply the economic concepts of this dissertation. Carrier, shipper, and full cost are examined with respect to service quality variables, carrier decision variables, annual volume, and trip distance. Quality efficiency and an alternative quality policy, carrier cost minimization, are examined and compared.
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