Hilton 1980 reports the following empirical demand model that Amtrak, the nation

Question

Hilton 1980 reports the following empirical demand model that Amtrak, the nations passenger rail service used in forecasting service changes. The model is based upon a sample of 71 observations of annual ridership changes on 39 routes serve between 1974-75 and 1975-76.

Where R% percentage is the annual percentage change in ridership on a route;
F% percentage is the annual percentage change in frequency [(train mile days / Route miles)] times 365 on a route;
E% is the absolute change in the percentage of train days having new equipment
T% percentage is the annual percentage change of Amtrak on time performance on a route
P% percentage is the annual percentage change of population in states along the routes
and ED is a dummy variable that equals one for recovery from energy shortage and zero otherwise

R% = -0.38 + 1.109F% + 0.319E + 0.073T% + 4.964P% - 18.325ED
                (52.2)                  (4.58)      (1.80)         (2.10)       (-5.73)
R2 (squared) = 0.978

A.
Interpret the results and discuss whether they are consistent with your expectations
B
When Amtrak was first formed is proponents forecasted a demand for services that fell far short of that realized. Part of the reason for this was Amtrak’s inability to attract bus passengers due to a generally low service frequency. Are the results in the table consistent with this?
C
Since its inception Amtrak was dropped a variety of luxury services. Is this behavior consistent with the above empirical model
Hint; (assumed that you were equipment is also more luxurious.)
D
Graphically identify the effect that an energy shortage has on ridership.
E
Although the model explains over 97% of the variation in ridership changes why might the coefficient estimates be biased.

Hint; what important economic variable is missing from the empirical model

Explanation / Answer

A. Yes, all the estimates are consistent with the intuitive understanding. All the signs of variables are consistent, Since increase of performance and population will lead to increase in passengers. Energy shortage will have negative impact.

B. Yes, the variable 'T' in the equation is significant that proves that good performance in service frequency increases passengers.

C. Yes, newer the equipment, better the increase of passengers since its sign is +ve

D. Energy shortage is reducing the passengers since its sign is -ve

E. Maybe number of sample chosen is not large enough and does not represent the diverse sampling.

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