Volatile crude and railroad regulation

Newly discovered domestic crude oil has caused large increases in rail traffic and an associated increase in derailments. In principle, derailments expose railroads to liabilities that can be very large, but railroads are protected as long as they comply with federal guidelines. Despite this, the railroads took it upon themselves to design a safer rail car. The railroads have also lobbied federal agencies to make the new standards part of regulation. This paper addresses two puzzles. First, why would the railroads expend resources on self- regulation when protected from tort? Second, why would the railroads push to have these stricter standards enshrined in federal regulation? We conclude that the answer lies in regulatory and legal uncertainty coupled with using regulators to overcome a collective action problem