Abstract
In response to recent regulatory reform in the United States, the Interstate Commerce Commission has decided to use stand-alone costs (SAC) to determine maximum railroad rates. This paper provides an analytical framework for the proper use of SAC. By drawing from the public utility literature and the game theory concept of a core, two alternative solutions for fair and efficient rail rates are derived: (1) the core with hypothetical rail entry, which elucidates the use of group rather than individual shipper SAC; (2) cost allocation procedures, such as the Moriarity rule and the Shapley value, which use SAC to compute allocation factors.
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