The British Passenger Rail Privatisation: Conclusions on Subsidy and Efficiency from the First Round of Franchises

Abstract

The paper examines the issue of subsidy cuts and efficiency gains arising from the first round of franchises from the British passenger rail privatisation. A problem is identified in past studies regarding the lack of a progressive dynamic between subsidy and efficiency over time. This paper assesses efficiency changes and productivity gains achieved by the British train-operating companies over an 8-year period, and then attempts to establish a statistical relationship between efficiency gains and subsidy cuts. Although such a relationship is established, the results more broadly indicate winner's curse syndrome and the strong negotiating position of the incumbent.

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