A subsidy policy to managing hazmat risk in railroad transportation network

Hazardous materials (hazmat) shipments are integral to any modern society, and railroad is the primary transportation mode in North America. Given the catastrophic nature of rail hazmat incidents, every effort should be made to mitigate risk. This study investigates a novel risk mitigation tool, i.e., subsidy, to induce railroad operators to take alternate routes that are away from high-risk portions of the network such as population centers. To this end, a bi-level optimization program is developed that captures both the risk perspective of the leader (i.e., government) and the cost concerns of the follower (i.e., railroad operator). Model complexity necessitated the development of a customized solution technique, and the resulting methodology was used to study problem instances generated on the realistic infrastructure of a railroad operator in Midwest United States. Analyses underscore the significance of using subsidy as a risk mitigation tool and in ensuring a fairer distribution of risk, in demonstrating how significant improvement in risk can be achieved by offering modest subsidy, and in defining the threshold level of the subsidy budget beyond which no improvement should be expected.