Output Aggregation, Network Effects, and the Measurement of Trucking Technology

Abstract

A multiproduct cost function for the regulated trucking industry is developed and estimated that utilizes network variables as arguments in the cost function. Using a cross-section of large regulated common carriers in 1976, it is shown that (1) substantial economies of network configuration and network operation exist, with well-connected networks and concentrated traffic flows yielding significant cost savings; and (2) the use of aggregate output measures and the omission of network variables may lead to substantial bias, indicating that researchers should use disaggregate output data in estimating trucking costs.