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A subadditivity test for the cost function of the principal European railways

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  • Pedro Cantos Sánchez

Abstract

The objective of this paper is the comparison of the efficiency levels for a set of European rail companies in monopoly situations with respect to hypothetical duopoly situations. More specifically, the aim is to test whether the operating costs function of such companies is subadditive. A cost function is subadditive when a single firm can produce all relevant output vectors cheaper than two or more firms. In order to do so the test developed by Evans and Heckman (1984) will be used. It was applied for the American phone company Bell System to assess the convenience of separating the management of local and long-distance services. The results indicate that at least for the companies of a greater size, an efficiency increase (as measured by lower costs), would be obtained from the separation of the current companies in two different companies of a lower size. Besides, these efficiency gains are greater when the two new companies specialize their production, either on passenger or on freight traffic.

Suggested Citation

  • Pedro Cantos Sánchez, 2000. "A subadditivity test for the cost function of the principal European railways," Transport Reviews, Taylor & Francis Journals, vol. 20(3), pages 275-290, January.
    • Handle: RePEc:taf:transr:v:20:y:2000:i:3:p:275-290
    DOI: 10.1080/014416400412814
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    Cited by:

    1. Link, Heike, 2006. "An econometric analysis of motorway renewal costs in Germany," Transportation Research Part A: Policy and Practice, Elsevier, vol. 40(1), pages 19-34, January.
    2. Rong, Zhang & Bouf, Dominique, 2005. "How can competition be introduced into Chinese railways?," Transport Policy, Elsevier, vol. 12(4), pages 345-352, July.
    3. Cantos Sánchez, P., 2001. "Vertical relationships for the European railway industry," Transport Policy, Elsevier, vol. 8(2), pages 77-83, April.
    4. Fumitoshi Mizutani & Shuji Uranishi, 2013. "Does vertical separation reduce cost? An empirical analysis of the rail industry in European and East Asian OECD Countries," Journal of Regulatory Economics, Springer, vol. 43(1), pages 31-59, January.

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