The economics of British rail privatization: an assessment

The 1993 Railways Act proposes the re‐organization, privatization and deregulation of the rail industry in Great Britain. The economic case for these reforms has recently been put forward in an important paper by Sir Christopher Foster. In this paper, we assess the economics of rail privatization and identify four potential problem areas. Firstly, it is not clear whether the structural reforms being undertaken are appropriate for an industry of rail's technological complexity nor whether a system of negotiated contracts will lead to lower transactions costs than a system of administered commands. Secondly, the vertical separation of infrastructure and operations ignores the likelihood of economies of integration at strategic (investment planning, land‐use planning), tactical (maintenance planning) and operational (planning to deal with infrastructure and vehicle failure) levels. Furthermore, there are practical problems in determining infrastructure costs and hence price and of regulating the infrastructu...

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