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Specific Investments and Ownership Structures in Railways – An Experimental Analysis

Author

Listed:
  • 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.

Suggested Citation

  • Thomas Ehrmann & Karl-Hans Hartwig & Torsten Marner & Hendrik Schmale, 2009. "Specific Investments and Ownership Structures in Railways – An Experimental Analysis," Working Papers 12, Institute of Transport Economics, University of Muenster.
  • Handle: RePEc:mut:wpaper:12
    as

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    File URL: https://www.wiwi.uni-muenster.de/ivm/sites/ivm/files/documents/forschung/diskussionspapiere/diskussionspapier12.pdf
    File Function: First version, 2009
    Download Restriction: no

    References listed on IDEAS

    as
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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).

    More about this item

    Keywords

    game theory; vertical separation; railways; experimental economics;

    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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