Professor David Besanko is the IBM Professor of Regulation and Competitive Practice at the Kellogg School of Management at Northwestern University. Besanko is a Northwestern graduate, having received his Ph.D. in Managerial Economics and Decision Sciences in 1982. He received his BA in Political Science from Ohio University in 1977. Before joining the Kellogg faculty in 1991, Professor Besanko was a member of the faculty of the School of Business at Indiana University from 1982-84 and 1986-1991. In 1985, he was a member of the Economics Staff at Bell Communications Research.
Professor Besanko teaches courses in public economics and infrastructure strategy at the Kellogg School. In 2015, Besanko received the Aspen Institute’s Faculty Pioneer Award, sometimes referred to as the “Oscars for the business school world.” In 2013 he was a finalist for this award. Besanko has received the two most prestigious teaching awards at the Kellogg School: the L.G. Lavengood Professor of the Year Award in 1995, 2010, and 2016—he is the only three-time winner of this award since its inception in 1975—and the Alumni Choice Teaching Award in 2006. At the Kellogg School, he has also received the Sidney J. Levy Teaching Award (1998, 2000, 2009, 2011, 2013, and 2018), the Chair’s Core Teaching Award (1999, 2001, 2003, and 2005), and the Kellogg Impact Award (2009, 2010, 2011, 2012, 2013, 2015, 2016, 2017, 2018, and 2019).
Professor Besanko’s research covers topics relating to the intersection of competitive strategy and public policy, the economics of regulation, and the theory of the firm. He has published over 50 articles in leading professional journals in economics and business. Among other places, his work has appeared in the American Economic Review, Econometrica, the Quarterly Journal of Economics, the RAND Journal of Economics, the Review of Economic Studies, the Journal of Law and Economics, Journal of Economic Theory, and Management Science. Along with Daniel Diermeier and Jose-Miguel Abito, he is co-author of Corporate Reputation and Social Activism, published in 2019. He has co-authored the widely used textbook, Microeconomics, with Ronald Braeutigam, now in its sixth edition. And with David Dranove, Mark Shanley, and Scott Schaefer, Besanko is a co-author of Economics of Strategy.
Professor Besanko served as Senior Associate Dean for Academic Affairs: Strategy and Planning at the Kellogg School from 2007 to 2009 and Senior Associate Dean for Academic Affairs: Curriculum and Teaching at Kellogg from 2001 to 2003.
Keynote Speech:Perspectives on the Economics of Freight Railway Restructuring (with some Applications to China)
IBM Professor of Regulation and Competitive Practices
Kellogg School of Management, Northwestern University
The restructuring of state-owned freight railway systems (or those that have been heavily regulated by the state) has been ongoing around the world for the last four decades. Each country that has undertaken this process has made, to some extent, distinct choices, but broadly speaking policy makers need to resolve two big questions as they consider restructuring. Should the system remain under state ownership? What approach to introducing competition should be adopted?
With respect to the first question, some countries have elected to keep some or all parts of their systems under state ownership, while many have privatized their systems. With respect to the second question, countries have followed two broad approaches to introducing competition: vertical unbundling and horizontal separation. Existing literature has identified potential advantages and disadvantages of these approaches, and there is a literature on the empirical implications of adopting these models. However, there remain interesting questions about the broader impact of these approaches on metrics that policy makers should presumably care about such as capital investment, consumer welfare, and social welfare.
In this talk I will present a simple theoretical model that provides a way of thinking through the trade-offs across the two broad approaches to introducing competition. I then adapt the model to explore the question of whether a country should prioritize privatization or the introduction of competition. While both may well be desirable, political constraints and/or a commitment to follow a process of incremental reform may constrain policy makers to emphasize one or the other, at least in the short to medium-term.
The talk will begin by reviewing a number of examples of freight rail restructuring that have taken place around the world. I then present the theoretical model I use to analyze the implications of vertical unbundling and horizontal separation in railway restructuring. I discuss the trade-offs suggested by the model, and review the literature on the cost and demand economics of railroads to offer some tentative conclusions about how the approaches would be expected to compare in terms of investment incentives and consumer and social welfare. This is followed by a discussion of the regulatory challenges each approach is likely to create. In the third part of the talk, I discuss whether it matters whether a country that has a state-owned vertically integrated monopoly railway system prioritizes privatization over the introduction of competition or vice versa. Finally, I conclude by offering lessons for China. An area of emphasis in this part of the talk will be on railway intermodal services, an area where China appears to be lagging other countries around the world such as the U.S.