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The impact of competition on productive efficiency in European railways

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Author Info
Gertjan Driessen
Mark Lijesen
Machiel Mulder

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Abstract

This paper empirically explores the relationship between competition design and productive efficiency in the railway industry. We use Data Envelopment Analysis (DEA) to construct efficiency scores, and explain these scores, using variables reflecting institutional factors and competition design. Our results suggest that competitive tendering improves productive efficiency, which is in line with economic intuition as well as with expectations on the design of competition. We also find that free entry lowers productive efficiency. A possible explanation for this result is that free entry may disable railway operators to reap economies of density. Our final result is that more autonomy of management lowers productive efficiency. Most of the incumbent railway companies are state owned and do not face any competitive pressure. As a consequence, increased independence without sufficient competition and adequate regulation may deteriorate incentives for productive efficiency.

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Paper provided by CPB Netherlands Bureau for Economic Policy Analysis in its series CPB Discussion Papers with number 71.

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Date of creation: Sep 2006
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Handle: RePEc:cpb:discus:71

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Related research
Keywords: Rail transport; Efficiency; competition design;

Find related papers by JEL classification:
D24 - Microeconomics - - Production and Organizations - - - Production; Capital and Total Factor Productivity; Capacity
H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Boundaries of Public and Private Enterprise; Privatization; Contracting Out
L92 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Railroads and Other Surface Transportation

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  1. Olley, G Steven & Pakes, Ariel, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, Econometric Society, vol. 64(6), pages 1263-97, November. [Downloadable!] (restricted)
  2. Mehdi Farsi & Massimo Filippini & William Greene, 2005. "Efficiency Measurement in Network Industries: Application to the Swiss Railway Companies," Journal of Regulatory Economics, Springer, vol. 28(1), pages 69-90, 07. [Downloadable!] (restricted)
  3. Melville L. McMillan & Debasish Datta, 1998. "The Relative Efficiencies of Canadian Universities: A DEA Perspective," Canadian Public Policy, University of Toronto Press, vol. 24(4), pages 485-511, December. [Downloadable!] (restricted)
  4. Disney, Richard F & Haskel, Jonathan & Heden, Ylva, 2000. "Restructuring And Productivity Growth In UK Manufacturing," CEPR Discussion Papers 2463, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  5. G. Steven Olley & Ariel Pakes, 1992. "The Dynamics of Productivity in the Telecommunications Equipment Industry," NBER Working Papers 3977, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May. [Downloadable!] (restricted)
  7. Pedro Cantos & José Pastor & Lorenzo Serrano, 1999. "Productivity, efficiency and technical change in the European railways: A non-parametric approach," Transportation, Springer, vol. 26(4), pages 337-357, November. [Downloadable!] (restricted)
  8. Vickers, John & Yarrow, George, 1991. "Economic Perspectives on Privatization," Journal of Economic Perspectives, American Economic Association, vol. 5(2), pages 111-32, Spring. [Downloadable!] (restricted)
  9. Cantos, Pedro & Maudos, Joaqui­n, 2001. "Regulation and efficiency: the case of European railways," Transportation Research Part A: Policy and Practice, Elsevier, vol. 35(5), pages 459-472, June. [Downloadable!] (restricted)
  10. De Fraja, Giovanni, 1991. "Efficiency and Privatisation in Imperfectly Competitive Industries," Journal of Industrial Economics, Blackwell Publishing, vol. 39(3), pages 311-21, March. [Downloadable!] (restricted)
  11. Caves, Douglas W & Christensen, Laurits R, 1980. "The Relative Efficiency of Public and Private Firms in a Competitive Environment: The Case of Canadian Railroads," Journal of Political Economy, University of Chicago Press, vol. 88(5), pages 958-76, October. [Downloadable!] (restricted)
  12. Friebel, Guido & Ivaldi, Marc & Vibes, Catherine, 2003. "Railway (De) Regulation : A European Efficiency Comparison," IDEI Working Papers 221, Institut d'Économie Industrielle (IDEI), Toulouse, revised 2007. [Downloadable!]
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  13. Cowie, Jonathan & Riddington, Geoff, 1996. "Measuring the Efficiency of European Railways," Applied Economics, Taylor and Francis Journals, vol. 28(8), pages 1027-35, August. [Downloadable!] (restricted)
  14. Gathon, H. -J. & Pestieau, P., 1995. "Decomposing efficiency into its managerial and its regulatory components: The case of European railways," European Journal of Operational Research, Elsevier, vol. 80(3), pages 500-507, February. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Mette Asmild & Torben Holvad & Jens Hougaard & Dorte Kronborg, 2009. "Railway reforms: do they influence operating efficiency?," Transportation, Springer, vol. 36(5), pages 617-638, September. [Downloadable!] (restricted)
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