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The New British Railways Structure A Transaction Cost Economics Analysis

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  • Anne Yvrande
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    Abstract

    The 1993 reform of rail transport in Great Britain led to an outright break-up of the British Rail vertically integrated monopoly. All railway activities have been isolated and divided among private operators whose relationships are determined by contracts. This paper examines the relevance of a vertical separation between train operations and rolling stock ownership and the stability of this new structure. Transaction cost theory, which mainly concentrates on vertical integration and contractual coordination issues, provides a relevant analytical framework. It is argued that the disintegrated governance structure is not suitable to the features of the relationships between lessors and lessees of rolling stock. Moreover, the coordinative mechanisms of existing leases cannot solve the problems caused by vertical separation. Therefore, operators have adapted the structure and change the characteristics of the rolling stock market transactions.

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    Bibliographic Info

    Paper provided by DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies in its series DRUID Working Papers with number 00-5.

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    Date of creation: 2000
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    Handle: RePEc:aal:abbswp:00-5

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    Web page: http://www.druid.dk/

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    Keywords: vertical integration; public utilities reform; transaction cost economics;

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    1. Mark Armstrong & Simon Cowan & John Vickers, 1994. "Regulatory Reform: Economic Analysis and British Experience," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262510790, December.
    2. Williamson, Oliver E, 1971. "The Vertical Integration of Production: Market Failure Considerations," American Economic Review, American Economic Association, American Economic Association, vol. 61(2), pages 112-23, May.
    3. Crocker, K.J. & Masten, S.E., 1988. "Pretia Ex Machina?: Prices And Process In Long-Term Contracts," Papers, Pennsylvania State - Department of Economics 10-88-2, Pennsylvania State - Department of Economics.
    4. Dnes, Antony W, 1993. "Franchising Passenger Rail," Scottish Journal of Political Economy, Scottish Economic Society, vol. 40(4), pages 420-33, November.
    5. Joskow, Paul L, 1987. "Contract Duration and Relationship-Specific Investments: Empirical Evidence from Coal Markets," American Economic Review, American Economic Association, American Economic Association, vol. 77(1), pages 168-85, March.
    6. Shelanski, Howard A & Klein, Peter G, 1995. "Empirical Research in Transaction Cost Economics: A Review and Assessment," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 11(2), pages 335-61, October.
    7. John Vickers & George Yarrow, 1988. "Privatization: An Economic Analysis," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262720116, December.
    8. Anderson, Erin, 1988. "Transaction costs as determinants of opportunism in integrated and independent sales forces," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 9(3), pages 247-264, April.
    9. Crocker, Keith J & Masten, Scott E, 1996. "Regulation and Administered Contracts Revisited: Lessons from Transaction-Cost Economics for Public Utility Regulation," Journal of Regulatory Economics, Springer, Springer, vol. 9(1), pages 5-39, January.
    10. Bradshaw, W P, 1997. "Competition in the Rail Industry," Oxford Review of Economic Policy, Oxford University Press, Oxford University Press, vol. 13(1), pages 93-103, Spring.
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    Cited by:
    1. Ioannis N. Kessides, 2004. "Reforming Infrastructure : Privatization, Regulation, and Competition," World Bank Publications, The World Bank, number 13525, August.

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