Panel data analysis of operating costs in the Norwegian car ferry industry

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.