Abstract:

Whether transaction costs increase following full vertical separation of railways has been the subject of much debate, but there is still little quantitative evidence on this question. This paper applies a bottom-up approach to compute transaction costs between train operation and infrastructure firms in three European rail systems for the first time (UK, Germany and Sweden). It finds that although full vertical separation does raise transaction costs, they are at most only around two to three per cent of total costs. Therefore only modest benefits of vertical separation, for example through increased competition, would be needed to outweigh them.

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Appeared or available online: July 26, 2011

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