Panel data analysis of operating costs in the Norwegian car ferry industry
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Panel data analysis of operating costs in the Norwegian car ferry industry Te r j e A n d r e a s M a t h i s e n a n d F i n n J ø r g e n s e n Bodø Graduate School of Business, NO-8049 Bodø, Norway. E-mails: [email protected], [email protected]
A b s t r a c t This article demonstrates that panel data estimation methods can be applied to derive operating costs for the highly regulated car ferry industry in Norway. The balanced data set includes 360 observations of ferry crossings from 1995 to 2005. Compared with cross-sectional results from earlier studies, the random effects (Generalized Least Squares) model applied in this article provides more efficient and unbiased cost estimates. With particular relevance for pricing according to the principles of welfare economics, our estimates indicate that previous studies have underestimated the marginal costs (MC) of transporting vehicles of different sizes. Moreover, the difference between fares and MC increases with distance. Hence, vehicles transported on longer trips are, in contrast to the welfare principles forming the basis for the current fare scheme, charged relatively more and, thus, subsidize the fares of vehicles transported on shorter trips. Maritime Economics & Logistics (2012) 14, 249–263. doi:10.1057/mel.2012.2
Keywords: costs; ferry industry; long-run marginal costs; fares; panel data analysis
Introduction The Norwegian Public Roads Administration (NPRA) each year subsidizes car ferry transport services in the coastal areas of Norway to the extent of approximately NOK11300 million each year.2 Even though all ferry crossings, with the exception of one, are not financially profitable, they do provide transport services considered indispensable for the welfare of society with an estimated social surplus amounting to about NOK4.3 billion (Jørgensen et al, 2011). The transport authorities are, therefore, willing to compensate the r 2012 Macmillan Publishers Ltd. 1479-2931 Maritime Economics & Logistics Vol. 14, 2, 249–263 www.palgrave-journals.com/mel/
Mathisen and Jørgensen
ferry industry for the deficits sustained through providing these services. Subsidies are distributed among the operators by the transport authorities using a policy of strict regulation of supplied services and fares (for example, Jørgensen et al, 2004). The objective of the regulation policy is to provide a coherent transport network with a fare system that charges equally throughout the country for a given distance, and also generating sufficient revenues for transport companies to operate profitably at the given level of subsidies (NOU 30A, 1977). Earlier studies carried out on the Norwegian ferry industry have used cross-sectional data to derive the relationship between the operating costs and the produced transport services (for example, Jørgensen et al, 2004; Mathisen, 2008). In these studies, the econometric models explaining total costs of operation are designed so the coefficients of the explanatory variables can be interpreted directly as marginal costs (MC) fo
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