Railway (De)Regulation: A European Efficiency Comparison

Abstract

Many European countries have sought to increase the efficiency of national railroad companies through a range of reforms: separating infrastructure and operations, creating independent regulatory institutions and providing access to the network to third parties. To estimate the effects of reforms on railroad efficiency, we investigate a new World Bank panel data set that covers many EU countries over a period of 20 years. We compare the passenger traffic efficiency of national railroad companies by means of a production frontier model and evaluate the effects of reforms on efficiency. We find that reforms have efficiency-increasing effects but that the effect of reforms depends on sequencing: The introduction of multiple reforms in a package has at best neutral effects, but sequential reforms improve efficiency. Using the LISREL technique, we find that our results are robust against potential problems of endogeneity.

Keywords: Production frontier, regulatory reform, network industries, panel data analysis, passenger and freight traffic

JEL Classification: L51, L92, D24, C23