Performance Measurement for Railway Transport: Stochastic Distance Functions with Inefficiency and Ineffectiveness Effects

To scrutinise the plausible sources of poor performance for non-storable transport services, it is necessary to distinguish technical inefficiency from service ineffectiveness. This paper attempts to measure the performance of railways that produce passenger and freight services by two stochastic distance function approaches. A stochastic input distance function with an inefficiency effect is defined to evaluate technical efficiency; whereas a stochastic consumption distance function with an ineffectiveness effect is introduced to assess service effectiveness. The empirical analysis examines 39 worldwide railway systems over eight years (1995-2002) where inputs contain number of passenger cars, number of freight cars, and number of employees, while outputs contain passenger train-kilometres and freight train-kilometres, and consumptions contain passenger-kilometres and ton-kilometres. The findings show that railways' technical inefficiency and service ineffectiveness are negatively influenced by gross national income per capita, percentage of electrified lines, and line density. Overall, the railways in West Europe perform more efficiently and effectively than those in East Europe and Non-European regions. Strategies for ameliorating the operation of less-efficient and/or less-effective railways are proposed. © 2006 LSE and the University of Bath