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Investment, Reprocurement and Franchise Contract Length in the British Railway Industry

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Author Info
Affuso, Luisa
Newbery, David M G

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Abstract

This Paper studies the interaction between repeated auctions of rail franchises of different lengths, uncertainty, and incentives for investment in rolling stock, following the privatization of British Rail. Theoretical predictions are tested empirically using a unique panel of data. Theory suggests that short franchise lengths reduce incentives to invest in specific assets. Our empirical results suggest that competition and strategic behaviour at the re-procurement stage can create incentives for delayed investment. Investing just before the end of the franchise enhances the incumbent’s probability of having the contract re-awarded and provides it with a first-mover advantage, while raising the entry cost for other potential bidders.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2619.

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Date of creation: Nov 2000
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Handle: RePEc:cpr:ceprdp:2619

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Keywords: Contracts Investment Panel Data Railways

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Find related papers by JEL classification:
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data
D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

References listed on IDEAS
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. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law & Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
  2. Mundlak, Yair, 1978. "On the Pooling of Time Series and Cross Section Data," Econometrica, Econometric Society, vol. 46(1), pages 69-85, January. [Downloadable!] (restricted)
  3. Grimm, Curtis M & Winston, Clifford & Evans, Carol A, 1992. "Foreclosure of Railroad Markets: A Test of Chicago Leverage Theory," Journal of Law & Economics, University of Chicago Press, vol. 35(2), pages 295-310, October.
  4. Richard A. Posner, 1972. "The Appropriate Scope of Regulation in the Cable Television Industry," Bell Journal of Economics, The RAND Corporation, vol. 3(1), pages 98-129, Spring. [Downloadable!] (restricted)
  5. Abel, Andrew B & Eberly, Janice C, 1994. "A Unified Model of Investment under Uncertainty," American Economic Review, American Economic Association, vol. 84(5), pages 1369-84, December. [Downloadable!] (restricted)
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  6. Andrew B. Abel & Janice C. Eberly, . "An Exact Solution for the Investment and Market Value of a Firm Facing Uncertainty, Adjustment Costs, and Irreversibility," Rodney L. White Center for Financial Research Working Papers 12-93, Wharton School Rodney L. White Center for Financial Research.
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  7. Pittman, R., 1990. "Specific Investments, Contracts, And Opportunism: The Evolution Of Railroad Sidetrack Agreements," Papers 90-6, U.S. Department of Justice - Antitrust Division.
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  8. Pittman, Russell W, 1990. "Railroads and Competition: The Santa Fe/Southern Pacific Merger Proposal," Journal of Industrial Economics, Blackwell Publishing, vol. 39(1), pages 25-46, September. [Downloadable!] (restricted)
  9. Luigi Guiso & Giuseppe Parigi, 1999. "Investment And Demand Uncertainty," The Quarterly Journal of Economics, MIT Press, vol. 114(1), pages 185-227, 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. IVALDI, Marc & SEABRIGHT, Paul, 2003. "The Economics of Passenger Rail Transport: A Survey," IDEI Working Papers 163, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
  2. Cpb, 2004. "Better safe than sorry? Reliability policy in network industries," CPB Documents 73, CPB Netherlands Bureau for Economic Policy Analysis. [Downloadable!]
  3. Rico Merkert, 2005. "Die Reorganisation und Zukunft des Eisenbahnwesens in Großbritanien," Volkswirtschaftliche Diskussionsbeiträge 78, Universität Potsdam, Wirtschafts- und Sozialwissenschaftliche Fakultät. [Downloadable!]
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