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The Impact of Structural and Contractual Arrangements on a Vertically Separated Railway

Author

Listed:
  • Luisa Affuso

    (London Business School)

  • David Newbery

    (University of Cambridge)

Abstract

The unbundling of railways in Britain has been heavily criticised as undermining the passenger rail system. Economic theory suggests that structural separation and short-lived contracts hinder incentives to invest in relation-specific assets. This paper consitutes an initial investigation of this proposition. It investigates whether the investment pattern of the rail passenger franchisees responds to structural and contractual characteristics using a unique panel of data on the privatised railways in Britain. Its findings suggest that unbundling and competition for franchises combined with commercial objectives can provide strong incentives towards better performance, as is the case for investment behaviour.

Suggested Citation

  • Luisa Affuso & David Newbery, 2002. "The Impact of Structural and Contractual Arrangements on a Vertically Separated Railway," The Economic and Social Review, Economic and Social Studies, vol. 33(1), pages 83-92.
  • Handle: RePEc:eso:journl:v:33:y:2002:i:1:p:83-92
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    File URL: http://www.esr.ie/vOL33_1Affuso.pdf
    File Function: First version, 2002
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    References listed on IDEAS

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    1. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, January.
    2. Abel, Andrew B & Eberly, Janice C, 1994. "A Unified Model of Investment under Uncertainty," American Economic Review, American Economic Association, pages 1369-1384.
    3. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
    4. Abel, Andrew B & Eberly, Janice C, 1994. "A Unified Model of Investment under Uncertainty," American Economic Review, American Economic Association, pages 1369-1384.
    5. Andrew B. Abel & Janice C. Eberly, "undated". "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.
    6. Edlin, Aaron S & Reichelstein, Stefan, 1996. "Holdups, Standard Breach Remedies, and Optimal Investment," American Economic Review, American Economic Association, pages 478-501.
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    Citations

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    Cited by:

    1. Gianni De Fraja & Emanuela Michetti & Piercarlo Zanchettin, 2011. "Toc 'n' Roll: Bargaining, Service Quality and Specificity in the UK Railway Network," Journal of Transport Economics and Policy, University of Bath, vol. 45(3), pages 383-414, September.
    2. Yvrande-Billon, Anne & Menard, Claude, 2005. "Institutional constraints and organizational changes: the case of the British rail reform," Journal of Economic Behavior & Organization, Elsevier, vol. 56(4), pages 675-699, April.
    3. Freddy Huet & Simon Porcher, 2013. "Innovation and regulatory outcomes: evidence from the public-private contracts for water supply in France," Chapters,in: Governance, Regulation and Innovation, chapter 9, pages 216-236 Edward Elgar Publishing.
    4. Pittman, Russell, 2007. "Options for Restructuring the State-Owned Monopoly Railway," Research in Transportation Economics, Elsevier, vol. 20(1), pages 179-198, January.
    5. Calzolari, Giacomo & Spagnolo, Giancarlo, 2009. "Relational Contracts and Competitive Screening," CEPR Discussion Papers 7434, C.E.P.R. Discussion Papers.
    6. Fumitoshi Mizutani & Shuji Uranishi, 2013. "Does vertical separation reduce cost? An empirical analysis of the rail industry in European and East Asian OECD Countries," Journal of Regulatory Economics, Springer, pages 31-59.
    7. Abbott, Malcolm & Cohen, Bruce, 2016. "The privatization and de-privatization of rail industry assets in Australia and New Zealand," Utilities Policy, Elsevier, pages 48-56.
    8. Emanuela Michetti, 2009. "Price and Quality Regulation in a Physical Network Industry," Department of Economics University of Siena 578, Department of Economics, University of Siena.

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