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Empirical Estimation of Incremental Costs for the U.S. Postal Service

  • Michael D. Bradley
  • Christopher S. Brehm
  • Jeffrey Colvin
  • William M. Takis
Part of the Topics in Regulatory Economics and Policy Series book series (TREP, volume 31)

Abstract

The problem of estimating incremental costs is an extremely important issue for the U.S. Postal Service. The Postal Service’s rate structure is required by law to be subsidy-free and cross subsidization tests must necessarily rely on accurate measures of incremental costs by product and groups of products. However, when one considers the size and complexity of the U.S. Postal Service’s operations and product offerings, the problem of estimating incremental costs becomes very difficult from both a conceptual and a computational standpoint. Bradley, Colvin, and Panzar (1997) discuss one of the fundamental problems in estimating incremental costs for a complex, multi-function firm such as the U.S. Postal Service. Specifically, the authors pose the following question: should the approach to estimating incremental costs make use of the individual equations that determine marginal costs for specific operations/functions within the firm (e.g., processing, delivery, transportation, etc.), or should the approach use an aggregate enterprise-level cost function as its analytical basis? The first approach can be termed a “micro” or “bottom up” approach, while the second approach can be termed a “macro” approach.

Keywords

Marginal Cost Constant Elasticity Incremental Cost Empirical Estimation Component Cost 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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References

  1. Baumol, William J., John C. Panzar, and Robert D. Willig. 1998. Contestable Markets and the Theory of Industry Structure, Revised Edition. San Diego: Harcourt Brace Jovanovich.Google Scholar
  2. Bradley, Michael D. 1997. Testimony before the Postal Rate Commission. Docket No. R97–1.Google Scholar
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  5. Bradley, Michael D., Jeff Colvin, and John Panzar. 1997. “Issues in Measuring Incremental Cost in a Multi-function Enterprise.” In Managing Change in the Postal and Delivery Industries, edited by M.A. Crew and P.R. Kleindorfer. Boston: Kluwer Academic Publishers.Google Scholar
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  9. Takis, William. 1997. Testimony before the Postal Rate Commission. Docket No. R97–1.Google Scholar

Copyright information

© Springer Science+Business Media New York 1999

Authors and Affiliations

  • Michael D. Bradley
  • Christopher S. Brehm
  • Jeffrey Colvin
  • William M. Takis

There are no affiliations available

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