The Estimation of Indian Railway Cost Function

Analysis of the cost structure of Indian Railways yields reasonable estimates of technical change, scale and substitution analysis. Technological advancements reduced fuel and labour services and increased capital services. Price elasticity of demand indicates that the own price elasticities of the inputs have negative sign. The cross price elasticities of demand are positive between labour and capital and so is the case with capital and fuel. The elasticity of substitution between the labour and fuel indicate complementarity and the elasticity between the labour and capital shows substitutability. The results show that fuel and capital are substitutes.