Railroad Property Valuation Using Data Envelopment Analysis

Railroad companies in the United States pay hundreds of millions of dollars in property tax each year. Railroad and tax officials often disagree about the appraisal methodology as well as the appraised value of railroads. A frequent area of disagreement is in the measurement of obsolescence, defined as the reduction in value due to changing economic conditions or design limitations. Current methods of measuring obsolescence in railroads systematically overestimate obsolescence. Data envelopment analysis (DEA) can be used to obtain a better measure of obsolescence. The states of Utah and Wisconsin have adopted the DEA method of measuring obsolescence.