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Rail Infrastructure Management Policy

Applying a Real-Options Methodology

Mount Allison University

Alexandra E. Mackay

University of Toronto

James F. Nolan

University of Saskatchewan

Since the economic liberalization of the rail industry in North America, the industry has sought continually to increase operating efficiency. The selective abandonment of track in a rail network is one of the methods most commonly used to reduce rail costs. The issue of rail-line abandonment has proven to be more controversial in Canada than in the United States. At present, the Canadian rail regulator uses costbenefit analysis (CBA) as a decision criterion to assess abandonment proposals. By considering more modern methods of financial analysis, this article constructs a counterfactual examination of an interesting 1993 track abandonment case in Canada. The case is reassessed through the lens of a real-option analytic framework. It is our contention that the information incorporated when using real options for a rail-line abandonment decision removes much of the controversy that has surrounded the process in the past.

Key Words: transportation policy • rail line abandonment • access pricing • real options

Public Works Management & Policy, Vol. 9, No. 2, 145-153 (2004)
DOI: 10.1177/1087724X04268697


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