Skip to main content
SpringerLink
Log in

Does vertical separation reduce cost? An empirical analysis of the rail industry in European and East Asian OECD Countries

  • Original Article
  • Published:
Journal of Regulatory Economics Aims and scope Submit manuscript

Abstract

The main purpose of this study is to analyze structural separation policies, especially vertical (i.e. operation-infrastructure) and horizontal (i.e. passenger-freight service) separation. Using the total cost function of a railway organization, we evaluate whether or not vertical separation and/or horizontal separation can reduce costs. For this analysis, we selected 30 railway organizations in 23 European and East Asian OECD countries over 14 years, from 1994 to 2007. Our findings show that horizontal separation reduces railway cost. As for vertical separation, effects change according to the train density of a railway organization. With lower train density, vertical separation tends to reduce cost, while with higher train density vertical separation increases cost.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  • Affuso L., Newbery D. (2002) The impact of structural and contractual arrangements on a vertically separated railway. The Economic and Social Review 33(1): 83–92

    Google Scholar 

  • Atkinson S. E., Halvorsen R. (1984) Parametric efficiency tests, economies of scale, and input demand in U.S. electric power generation. International Economic Review 25(3): 647–662

    Article  Google Scholar 

  • Bitzan J. D. (2003) Railroad costs and competition: The implications of introducing competition to railroad networks. Journal of Transport Economics and Policy 37(2): 201–225

    Google Scholar 

  • Bitzan J. D., Keeler T. E. (2003) Productivity growth and some of its determinants in the deregulated U.S. railroad industry. Southern Economic Journal 70(2): 232–253

    Article  Google Scholar 

  • Bitzan J. D., Keeler T. E. (2007) Economies of density and regulatory change in the U.S. Railroad Freight Industry. Journal of Law and Economics 50(1): 157–180

    Article  Google Scholar 

  • Bitzan J. D., Wilson W. W. (2007) Hedonic cost function approach to estimating railroad costs. Research in Transportation Economics 20: 69–95

    Article  Google Scholar 

  • Buehler S., Schmutzler A., Benz M. (2004) Infrastructure quality in deregulated industries: Is there an underinvestment problem?. International Journal of Industrial Organization 22(2): 253–267

    Article  Google Scholar 

  • Cantos Sánchez P. (2001) Vertical relationships for the European railway industry. Transport Policy 8(2): 77–83

    Article  Google Scholar 

  • Cantos Sànchez P. (2000) Subadditivity test for the cost function of the Principal European railways. Transport Reviews 20(3): 275–290

    Article  Google Scholar 

  • Cantos Sànchez P. C., Villarroya J. M. (2000) Efficiency, technical change and productivity in the European rail sector: A stochastic frontier approach. International Journal of Transport Economics 27(1): 55–76

    Google Scholar 

  • Cantos P., Maudos J. (2001) Regulation and efficiency: The case of European railways. Transportation Research-A 35(5): 459–472

    Google Scholar 

  • Christopoulos D. K., Loizides J., Tsionas E. G. (2000) Measuring input-specific technical inefficiency in European railways: A panel data approach. International Journal of Transport Economics 27(2): 147–171

    Google Scholar 

  • Christopoulos D. K., Loizides J., Tsionas E. G. (2001) Efficiency in European railways: Not as inefficient as one might think. Applied Economics 4(1): 63–88

    Google Scholar 

  • Cowie J. (2002) The production economics of a vertically separated railway—the case of the British train operating companies. Trasport Europei 8(20/21): 96–103

    Google Scholar 

  • Daniel V. E., Pels E., Rietveld P. (2010) Returns to density in operations of the Netherlands railways. International Journal of Transport Economics 37(2): 169–191

    Google Scholar 

  • Di Pietrantonio L., Pelkmans J. (2004) The economics of EU railway reform. Bruges European Economic Policy Briefings, College of Europe, The Hague, Holland

    Google Scholar 

  • Drew J. (2009) The benefits for rail freight customers of vertical separation and open access. Transport Reviews 29(2): 223–237

    Article  Google Scholar 

  • ECMT: (1998) Rail restructuring in Europe. OECD, Paris, France

    Google Scholar 

  • ECMT: (2001) Railway reform: Regulation of freight transport markets. OECD, Paris, France

    Google Scholar 

  • ECMT: (2005) Railway reform and charges for the use of infrastructure. OECD, Paris, France

    Google Scholar 

  • Farsi M., Filippini M., Greene W. (2005) Efficiency measurement in network industries: Application to the Swiss railway companies. Journal of Regulatory Economics 28(1): 68–89

    Article  Google Scholar 

  • Friebel G., Ivaldi M., Vibes C. (2010) Railway (De)regulation: A European efficiency comparison. Economica 77(305): 77–99

    Article  Google Scholar 

  • Growitsch C., Wetzel H. (2009) Testing for economies of scope in European railways: An efficiency analysis. Journal of Transport Economics and Policy 43(1): 1–24

    Google Scholar 

  • Hori M. (1996) Separation of infrastructure and operations and open access: From the viewpoint of internal organization theory (Joge Bunri to Opun Akusesu). Transportation and Economy (Unyu to Keizai), 56(6): 79–87 (in Japanese)

    Google Scholar 

  • Ivaldi M., McCullough G. J. (2001) Density and integration effects on class I U.S. freight railroads. Journal of Regulatory Economics 19(2): 161–182

    Article  Google Scholar 

  • Ivaldi M., McCullough G. J. (2008) Subadditivity tests for network separation with an application to U.S. railroads. Review of Network Economics 7(1): 159–171

    Article  Google Scholar 

  • Jensen A. (1998) Competition in railway monopolies. Transportation Research-E 34(4): 267–287

    Article  Google Scholar 

  • Jensen A., Stelling P. (2007) Economic impacts of Swedish railway deregulation: A longitudinal study. Transportation Research-E 43(5): 516–534

    Article  Google Scholar 

  • Kim H. Y. (1987) Economies of scale and scope in multiproduct firms: Evidence from US railroads. Applied Economics 19: 733–741

    Article  Google Scholar 

  • Kim, M., & Kim, S. (2001). An analysis of the cost structure of a Seoul’s rail transit property: Stochastic frontier approach. A Paper Presented to Ninth World Conference on Transport Research, Seoul, Korea, July 22–27.

  • Ksoll, M. (2004). Integration of infrastructure and transport: An assessment from industrial economics and railway perspectives. Paper Presented at the 2nd Conference on Railroad Industry Structure, Competition and Investment October 8–9, 2004, Evanston, IL, USA.

  • Kurosaki, F. (2008). An Analysis of Vertical Separation of Railways, Unpublished Doctor of Philosophy Dissertation, Institute for Transport Studies, the University of Leeds, Leeds.

  • Kurosaki, F. (2009). An analysis of vertical separation of railways (Tetsudo no Joge Bunri ni Kansuru Bunseki). Annual Report on Transportation Economics (Kotsugaku Kenkyu) (Vol. 53, pp. 65–74) (in Japanese).

  • Lan L. W., Lin E. T. J. (2006) Performance measurement for railway transport: Stochastic distance functions with inefficiency and ineffectiveness effects. Journal of Transport Economics and Policy 40(3): 383–408

    Google Scholar 

  • Lodge M. (2002) The wrong type of regulation? Regulatory failure and the Railways in Britain and Germany. Journal of Public Policy 22(3): 271–297

    Article  Google Scholar 

  • Loizides J., Tsionas E. G. (2002) Productivity growth in European railways: A new approach. Transportation Research-A 36(7): 633–644

    Google Scholar 

  • Mancuso P., Reverberi P. (2003) Operating costs and market organization in railway services: The case of Italy, 1980–1995. Transportation Research-B 37(1): 43–61

    Article  Google Scholar 

  • Mizutani F. (2004) Privately owned railways’ cost function, organization size and ownership. Journal of Regulatory Economics 25(3): 297–322

    Article  Google Scholar 

  • Mizutani F., Shoji K. (2004) Rail operation-infrastructure separation: The case of Kobe rapid transit railway. Transport Policy 11: 251–263

    Article  Google Scholar 

  • Mizutani F., Nakamura K. (2004) The Japanese experience with railway restructuring. In: Ito T., Krueger A. O. (Eds.), Governance, regulation and privatization. The University of Chicago Press, Chicago, pp 305–336

    Google Scholar 

  • Mizutani F., Uranishi S. (2007) The effects of privatization on productivity and capital adjustment. International Journal of Transport Economics 34(2): 197–224

    Google Scholar 

  • Mizutani F., Kozumi H., Matsushima N. (2009) Does Yardstick regulation really work? Empirical evidence from Japan’s rail industry. Journal of Regulatory Economics 36(3): 308–323

    Article  Google Scholar 

  • Nash, C. (1997). The separation of operation from infrastructure in the provision of railway services: The British experience. In ECMT (Ed.) The Separation of Operation from Infrastructure in the Provision of Railway Service (pp. 53–89), OECD, Paris, France.

  • Nash, C., & Rivera-Trujillo C. (2004). Rail regulatory reform in Europe: Principles and practice. Paper Presented at the Conference on Competition in the Rail Industry, September 2004, Madrid, Spain.

  • Nash, C. (2011). European Union Transport Policy and sustainability—the Role of Rail. Paper Presented at the 70th Anniversary International Symposium, The Japan Society of Transport Economics, October 15, 2011, Kobe University, Kobe, Japan.

  • Oum T. H., Yu C. (1994) Economic efficiency of railways and implications for public policy: A comparative study of the OECD Countries’ railways. Journal of Transport Economics and Policy 28(2): 121–138

    Google Scholar 

  • Pittman R. (2003) Vertical restructuring (or Not) of the infrastructure sectors of transition economies. Journal of Industry Competition and Trade 3(1/2): 5–26

    Article  Google Scholar 

  • Pittman R. (2005) Structural separation to create competition? The case of freight railways. Review of Network Economics 4(3): 181–196

    Article  Google Scholar 

  • Preston J. (2002) The transaction cost economics of railways. Trasporti Europei 8(20/21): 6–15

    Google Scholar 

  • Savage I. (1997) Scale economies in United States rail transit systems. Transportation Research: Part A 31(6): 459–473

    Google Scholar 

  • Smith A. S. (2006) Are Britain’s railways costing too much?: Perspectives based on TFP comparisons with British rail 1963–2002. Journal of Transport Economics and Policy 40(1): 1–44

    Google Scholar 

  • Williamson O. (1985) The economic institutions of capitalism. The Free Press, New York

    Google Scholar 

  • Wills-Johnson N. (2008) Separability and subadditivity in Australian railways. The Economic Record 84(264): 95–108

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Graduate School of Business Administration, Kobe University, 2-1 Rokkodai, Nada-ku, Kobe, 657-8501, Japan

    Fumitoshi Mizutani

  2. Faculty of Business Administration, Fukuyama Heisei University, 117-1 Miyuki-cho Kami Iwanari, Fukuyama, 720-0001, Japan

    Shuji Uranishi

Authors
  1. Fumitoshi Mizutani
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Shuji Uranishi
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Fumitoshi Mizutani.

Additional information

An earlier version of this paper was presented at the 12th World Conference on Transport Research in Lisbon, Portugal, July 11–15, 2010, an Economics Seminar at Osaka University, Graduate School of Economics, September 30, 2010, an Applied Microeconomics Seminar at Kyoto University, Graduate School of Economics, January 27, 2011, and a Transport Economics Seminar at the University of Leeds, December 7, 2011.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Mizutani, F., Uranishi, S. Does vertical separation reduce cost? An empirical analysis of the rail industry in European and East Asian OECD Countries. J Regul Econ 43, 31–59 (2013). https://doi.org/10.1007/s11149-012-9193-4

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11149-012-9193-4

Keywords

JEL Classification

Search

Navigation