Specific Investments and Ownership Structures in Railways – An Experimental Analysis
AbstractWe 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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Bibliographic InfoPaper provided by Institute of Transport Economics, University of Muenster in its series Working Papers with number 12.
Length: 34 pages
Date of creation: Oct 2009
Date of revision:
game theory; vertical separation; railways; experimental economics;
Find related papers by JEL classification:
- C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- L92 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Railroads and Other Surface Transportation
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