Institute for Transport Studies (ITS)

Railway Costs and Efficiency

Developing methods and evidence to help inform railway policy

European legislation has sought to reverse the fortunes of Europe’s railways by opening up markets to competition. Britain’s radical rail reforms resulted in sharp price increases in both infrastructure and running the trains.

Our research in econometrics for the Office of Rail Regulation (ORR), OFWAT, Rail Research UK, the EU and others, in collaboration with international colleagues has 3 strands:

  1. What causes the high costs of rail infrastructure and how efficient are different rail infrastructure companies around the world? To understand this and advise on policy we use advanced modelling techniques. We have devised new methods, for example to estimate inefficiency, and new “totex” models to address the capital bias inherent within UK economic regulatory approaches.
  2. We evaluate the impact of European rail reforms (competitive tendering and alternative approaches to railway organisation internationally) and we advise on the optimal size of train operating companies.
  3. What charges should different train operators pay to access Europe’s rail networks? We estimate and provide an evidence base for determining the marginal infrastructure costs as well as the costs of rail maintenance and renewal. Leading on three large research projects funded by the EU (GRACE, CATRIN and SUSTRAIL), our international collaborations include the Centre for Transport Studies in Stockholm, Royal Institute of Technology (KTH) and the Swedish National Road and Transport Research Institute (VTI).

We have also collaborated with Professor William Greene at the Stern Business School, New York, and Professor Mizutani at Kobe University, Japan.

Recent research outputs:

Wheat, P.E., Greene, W, and Smith, A.S.J. (forthcoming). Understanding prediction intervals for firm specific inefficiency scores from parametric Stochastic Frontier Models. Journal of Productivity Analysis (accepted 2013).

Smith, A.S.J. and Wheat, P.E. (2012) Estimation of cost inefficiency in panel data models with firm specific and sub-company specific effects. Journal of Productivity Analysis, 37, pp27-40.

Andersson, M., Smith, A.S.J., Wikberg, A., and Wheat, P.E. (2012) Estimating the marginal cost of railway track renewals using corner solution models. Transportation Research Part A, 46 (6), pp954-964.

Smith, A.S.J (2012) The application of stochastic frontier panel models in economic regulation: Experience from the European rail sector. Transportation Research Part E, 48, pp503-515.

Smith, A.S.J. and Wheat, P.E. (2012) Evaluating alternative policy responses to franchise failure: evidence from the passenger rail sector in Britain. Journal of Transport Economics and Policy, 46 (1), pp25-49.

For further information, please contact: Dr Andrew Smith or Phill Wheat