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Assessing the efficient cost of sustaining Britain’s rail network: perspectives based on Zonal comparisons

  • Kennedy, J.
  • Smith, A.S.J.

The objective of this paper is to inform the debate on how efficiency targets for Network Rail (formerly Railtrack) should be set during the 2002/03 Interim Review and beyond. Given the problems experienced during the 2000 Periodic Review, which focused on external benchmarks, we propose an internal benchmarking approach, drawing on data for seven geographical Zones within Railtrack (over the period 1995/96 to 2001/02). Our approach mirrors the yardstick competition method used in other UK regulated industries. Three efficiency measurement techniques are applied to this data (DEA; COLS; SFA). Our results suggest that Railtrack (as a whole) delivered substantial improvements in productivity in the early years after privatisation, although these savings were largely offset by the post-Hatfield cost increases. However, looking forward, Zonal efficiency differences suggest that the company could make significant savings in future years by applying (its own) best practice consistently across the network.

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File URL: http://www.econ.cam.ac.uk/research/repec/cam/pdf/wp0317.pdf
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Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0317.

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Length: 38
Date of creation: Feb 2003
Date of revision:
Handle: RePEc:cam:camdae:0317
Note: IO
Contact details of provider: Web page: http://www.econ.cam.ac.uk/index.htm

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  1. Richmond, J, 1974. "Estimating the Efficiency of Production," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 15(2), pages 515-21, June.
  2. Pollitt, M. & Smith, A.S.J., 2001. "The Restructuring and Privatisation of British Rail: Was it really that bad?," Cambridge Working Papers in Economics 0118, Faculty of Economics, University of Cambridge.
  3. Aigner, Dennis & Lovell, C. A. Knox & Schmidt, Peter, 1977. "Formulation and estimation of stochastic frontier production function models," Journal of Econometrics, Elsevier, vol. 6(1), pages 21-37, July.
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  5. Greene, William H., 1980. "Maximum likelihood estimation of econometric frontier functions," Journal of Econometrics, Elsevier, vol. 13(1), pages 27-56, May.
  6. Pitt, Mark M. & Lee, Lung-Fei, 1981. "The measurement and sources of technical inefficiency in the Indonesian weaving industry," Journal of Development Economics, Elsevier, vol. 9(1), pages 43-64, August.
  7. Afriat, Sidney N, 1972. "Efficiency Estimation of Production Function," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 13(3), pages 568-98, October.
  8. Jondrow, James & Knox Lovell, C. A. & Materov, Ivan S. & Schmidt, Peter, 1982. "On the estimation of technical inefficiency in the stochastic frontier production function model," Journal of Econometrics, Elsevier, vol. 19(2-3), pages 233-238, August.
  9. Coelli, Tim & Perelman, Sergio, 1999. "A comparison of parametric and non-parametric distance functions: With application to European railways," European Journal of Operational Research, Elsevier, vol. 117(2), pages 326-339, September.
  10. Charnes, A. & Cooper, W. W. & Rhodes, E., 1978. "Measuring the efficiency of decision making units," European Journal of Operational Research, Elsevier, vol. 2(6), pages 429-444, November.
  11. Meeusen, Wim & van den Broeck, Julien, 1977. "Efficiency Estimation from Cobb-Douglas Production Functions with Composed Error," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 18(2), pages 435-44, June.
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