Evaluating transportation regulation using behavioral experimentation: The maximum revenue entitlement (MRE) policy for grain transportation in Canada

• Canadian grain transportation sector is regulated by the maximum revenue entitlement. • As implemented, this policy was never vetted nor studied to study its potential consequences. • In spite of its longevity, the policy remains unique in the transportation regulation literature. • Our study finds that the MRE policy is flawed and in need of re-assessment by Canadian regulators. The goal of this research is to gain insight into hitherto poorly understood behavioral consequences associated with the implementation of the Maximum Revenue Entitlement (or MRE) policy in Canadian rail, a regulation applied specifically to grain movement. Since a duopoly rail market serves the vast Canadian grain handling sector, the MRE was implemented in 2000 to help regulate transportation rates on moving grain. Despite its longevity as a regulatory policy, no analysis has ever been undertaken to assess how behavioral incentives attributable to the MRE might affect relevant stakeholders in the Canadian grain supply chain. Using a cross-disciplinary approach, we examine the MRE analytically prior to developing behavioral experiments designed to emulate this regulated supply chain. First, analytics indicate that as designed the MRE is biased towards longer distance movements. Next, our baseline experiment showed that optimizing behavior for all participants under the MRE is not an easy task, but more careful decision-making behavior occurred with a greater MRE penalty. However, the identified analytic bias over distance was not consistently exploited by the experimental participants. Overall, the experimental analysis provided additional clarity about unforeseen issues with the MRE, while also showing that the MRE policy is in need of re-evaluation to ensure that this crucial supply chain remains economically sustainable for all participants.