The Measurement of Transaction Costs — Evidence from European Railways

Rico Merkert · Andrew S. J. Smith · Chris A. Nash

62 citations0/0 files storedJournal of Transport Economics and Policy

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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 2 per cent to 3 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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References

1987The Economic Institutions of Capitalism 1998Transaction Cost Economics: How It Works; Where It is Headed 2010Institutions and Economic Theory: The Contribution of the New Institutional Economics 1986Measuring the Transaction Sector in the American Economy, 1870-1970 2008Railway (De)Regulation: A European Efficiency Comparison 2003Railroad Costs and Competition: The Implications of Introducing Competition to Railroad Networks 2010Vertical and Horizontal Separation in the European Railway Sector and its Effects on Productivity 2002The restructuring and privatisation of British Rail: was it really that bad?

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