The Response of Railroad and Truck Freight Shipments to Optimal Excess Capacity Subsidies and Externality Taxes

Florida’s public highways are congested. At the same time there is excess capacity on private railroads. Further, the social costs of moving a ton-mile of freight—including costs from air pollution, accidents, congestion, and wear on the nation’s transportation system—are lower by rail than by truck for many types of freight movements. Given this situation, should the state design policies to increase utilization of the state’s railroads? Would a policy that subsidizes freight shipment by railroad, and taxes the generation of harmful externalities, be beneficial to residents of the state? This report examines whether such policies can be economically justified.