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Transaction and transition costs during the deregulation of the Swedish Railway market

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  • Andersson, Matts
  • Hultén, Staffan

Abstract

The research on regulatory reform has identified and measured three types of costs associated with the shift from monopoly to competition: transaction costs, misalignment costs and transition costs. In this article we use a case study approach to measure and compare these costs during the deregulation of the Swedish railway system from 2000–2015. Our case studies confirm earlier research that vertical separation and the introduction of competition in the railway markets result in comparatively small direct transaction costs. Extraordinary transaction costs in the form of interrupted contracts are also a minor problem for the railway system as a whole but might create major problems for the affected region. Our research concurs with earlier research on the British railway system and a CER study that misalignment costs seem to be significantly bigger and more troublesome to handle than direct transaction costs. Railway maintenance costs in Sweden using competitive tenders are increasing four to five times faster than railway operations with no measurable improvement in performance. Transition costs have been and continue to be important in the deregulated Swedish railway system. First, procrastination in the form of delayed changes in the allocation of train paths results in misalignment costs that seem to be growing. Second, adjustment costs in the form of handouts to the former monopolist have been ten times higher than the costs for interrupted contracts.

Suggested Citation

  • Andersson, Matts & Hultén, Staffan, 2016. "Transaction and transition costs during the deregulation of the Swedish Railway market," Research in Transportation Economics, Elsevier, vol. 59(C), pages 349-357.
  • Handle: RePEc:eee:retrec:v:59:y:2016:i:c:p:349-357
    DOI: 10.1016/j.retrec.2016.05.002
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    References listed on IDEAS

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    1. Merkert, Rico, 2010. "Changes in transaction costs over time - The case of franchised train operating firms in Britain," Research in Transportation Economics, Elsevier, vol. 29(1), pages 52-59.
    2. Rico Merkert & Andrew S. J. Smith & Chris A. Nash, 2012. "The Measurement of Transaction Costs - Evidence from European Railways," Journal of Transport Economics and Policy, University of Bath, vol. 46(3), pages 349-365, September.
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    4. Kristofer Odolinski & Andrew S. J. Smith, 2016. "Assessing the Cost Impact of Competitive Tendering in Rail Infrastructure Maintenance Services: Evidence from the Swedish Reforms (1999 to 2011)," Journal of Transport Economics and Policy, University of Bath, vol. 50(1), pages 93-112, January.
    5. Pereira, Luiz Carlos Bresser & Abud, Jairo, 1997. "Net and total transition costs: The timing of economic reform," World Development, Elsevier, vol. 25(6), pages 905-914, June.
    6. Nash, Chris A. & Smith, Andrew S.J. & van de Velde, Didier & Mizutani, Fumitoshi & Uranishi, Shuji, 2014. "Structural reforms in the railways: Incentive misalignment and cost implications," Research in Transportation Economics, Elsevier, vol. 48(C), pages 16-23.
    7. Merkert, Rico & Hensher, David A., 2014. "Open access for railways and transaction cost economics – Management perspectives of Australia's rail companies," Research in Transportation Economics, Elsevier, vol. 48(C), pages 227-236.
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    More about this item

    Keywords

    Railways; Deregulation; Transaction costs; Transition costs; Misalignment; Adaptation; Selection;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • H4 - Public Economics - - Publicly Provided Goods
    • H44 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Goods: Mixed Markets
    • K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law
    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L92 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Railroads and Other Surface Transportation

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