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Specific Investments and Ownership Structures in Railways – An Experimental Analysis

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Author Info

  • Thomas Ehrmann

    ()
    (Institute of Strategic Management, Muenster)

  • Karl-Hans Hartwig

    ()
    (Institute of Transport Economics, Muenster)

  • Torsten Marner

    ()
    (Institute of Transport Economics, Muenster)

  • Hendrik Schmale

    ()
    (Institute of Strategic Management, Muenster)

Abstract

We analyze the impact of different organizational structures on incentives to invest in railways: vertical integration, vertical separation, and a hybrid form. Economic theory predicts that vertical integration fosters socially optimal investment, whereas, due to potential hold-up problems, both vertical separation and hybrid forms cause severe underinvestment. We test these theoretical predictions in a laboratory experiment and find evidence that, in a vertically integrated environment, the level of investment in rolling stock and in rail infrastructure is roughly socially optimal. The complete absence of a discrepancy in our experimental results between vertical separation and the hybrid organisational structure, contradicting the predictions of model-theory, is surprising and can be attributed to the relatively high investments in the separated model. This contradiction might also be explained by the existence of social preferences.

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File URL: http://www.wiwi.uni-muenster.de/ivm/materialien/forschen/veroeffentlichungen/Diskussionspapier12.pdf
File Function: First version, 2009
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Bibliographic Info

Paper provided by Institute of Transport Economics, University of Muenster in its series Working Papers with number 12.

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Length: 34 pages
Date of creation: Oct 2009
Date of revision:
Handle: RePEc:mut:wpaper:12

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Keywords: game theory; vertical separation; railways; experimental economics;

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Cited by:
  1. Benjamin Pakula & Georg Götz, 2011. "Organisational Structures in Network Industries – An Application to the Railway Industry," MAGKS Papers on Economics 201109, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).

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