IDEI Report # 1 Rail Transport

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IDEI Report # 1 Rail Transport IDEI Report # 1 Rail Transport January 2003 The Economics of Passenger Rail Transport A Survey IDEI Report #1 on Passenger Rail Transport January 2003 TTThhheee EEEcccooonnnooommmiiicccsss ooofff PPPaaasssssseeennngggeeerrr RRRaaaiiilll TTTrrraaannnssspppooorrrttt AAA SSSuuurrrvvveeeyyy TTThhheee EEEcccooonnnooommmiiicccsss ooofff PPPaaasssssseeennngggeeerrr RRRaaaiiilll TTTrrraaannnssspppooorrrttt AAA SSSuuurrrvvveeeyyy prepared by Paul Seabright with contributions by Claude Crampes Etienne de Villemeur Guido Friebel Chris Glasson Aldo Gonzalez Marc Ivaldi Jérôme Pouyet Emile Quinet Catherine Vibes Acknowledgements The authors acknowledge with gratitude the advice and research support of Deutsche Bahn AG, but note that the views expressed remain those of the authors alone and in no way represent the views of Deutsche Bahn AG or its representatives. 2 3 The Economics of Passenger Rail Transport: A Survey Contents 1. INTRODUCTION............................................................................................................................................. 8 2. THE CHARACTERISTICS OF PASSENGER RAIL SERVICES ........................................................... 10 2.1. SUPPLY AND DEMAND – GENERAL PRINCIPLES ............................................................................................ 10 2.1.1. The basic characteristics of rail transport.......................................................................................... 10 2.1.2. The demand for rail transport............................................................................................................. 11 2.1.3. The supply of rail transport................................................................................................................. 12 2.2. WHAT DO WE KNOW EMPIRICALLY ABOUT DEMAND? ................................................................................. 14 2.3. WHAT DO WE KNOW EMPIRICALLY ABOUT COSTS? ..................................................................................... 18 2.4. MEASURING EXTERNALITIES IN RAIL TRANSPORT ....................................................................................... 20 2.4.1. Pecuniary externalities due to imperfect pricing ................................................................................ 21 2.4.2. Public service obligations ................................................................................................................... 21 2.4.3. Environmental externalities ................................................................................................................ 21 2.4.4. Ascribing monetary values to externalities ......................................................................................... 22 2.4.5. Time externalities and their various forms: the “congestion” complex.............................................. 24 3. CONDITIONS OF COMPETITION IN THE INDUSTRY........................................................................ 38 3.1. VERTICAL AND HORIZONTAL INTEGRATION ................................................................................................ 38 3.1.1. Vertical integration ............................................................................................................................. 38 3.1.2. Horizontal integration......................................................................................................................... 41 3.2. SERVICE DIVERSIFICATION AND ECONOMIES OF SCOPE ............................................................................... 42 3.3. INTER-MODAL COMPETITION....................................................................................................................... 43 3.4. ACCESS TO INFRASTRUCTURE AND BARRIERS TO ENTRY............................................................................. 46 3.5. INFRASTRUCTURE INVESTMENT AND FINANCING ........................................................................................ 48 3.5.1. Rolling Stock ....................................................................................................................................... 48 3.5.2. Infrastructure ...................................................................................................................................... 49 3.5.3. Decision-making for infrastructure investment................................................................................... 50 3.5.4. Use of and Access to Infrastructure .................................................................................................... 52 3.6. ARE ALL FACILITIES NATURAL MONOPOLIES? ............................................................................................. 53 4. ENTRY AND COMPETITION..................................................................................................................... 56 4.1. PRICE COMPETITION .................................................................................................................................... 56 4.2. COMPETITION ON SPEED, PUNCTUALITY AND OTHER SERVICES ................................................................... 57 4.3. PREDATION ................................................................................................................................................. 58 4.3.1. What is the relevant measure of cost?................................................................................................. 59 4.3.2. Department of Transportation (DOT) Guidelines............................................................................... 59 4.3.3. European Union.................................................................................................................................. 59 4.4. WHAT IS THE LIKELY OUTCOME OF ON-TRACK COMPETITION?.................................................................... 60 4.4.1. Demand ............................................................................................................................................... 60 4.4.2. Supply.................................................................................................................................................. 61 4.5. THE VALUE OF INTERCONNECTIONS AND ITS RELEVANCE FOR HORIZONTAL INTEGRATION DECISIONS ....... 63 5. MEASURING PERFORMANCE IN THE INDUSTRY............................................................................. 66 5.1. IDEAL MEASURES OF PERFORMANCE ........................................................................................................... 66 5.2. PRACTICAL MEASURES OF PERFORMANCE................................................................................................... 66 5.3. HOW IS PERFORMANCE RELATED TO COMPETITION? ................................................................................... 70 6. REGULATION ............................................................................................................................................... 72 6.1. DIFFERENT REGIMES AROUND THE WORLD ................................................................................................. 72 6.2. MESSAGES FROM THE CASE STUDIES........................................................................................................... 72 6.2.1. Advantages of tendering...................................................................................................................... 73 6.2.2. Advantages of open access.................................................................................................................. 73 7. CONCLUDING REMARKS.......................................................................................................................... 76 4 APPENDIX 1: THE SWEDISH CASE ............................................................................................................. 78 APPENDIX 2: THE JAPANESE CASE ........................................................................................................... 82 APPENDIX 3: THE NEW ZEALAND CASE................................................................................................. 86 APPENDIX 4: THE AUSTRALIAN CASE ..................................................................................................... 88 APPENDIX 5: THE UNITED KINGDOM CASE........................................................................................... 96 APPENDIX 6: REGULATORY REGIMES AROUND THE WORLD ...................................................... 106 REFERENCES.................................................................................................................................................. 118 List of Tables Table 1: Effect of cost and travel time on modal choice ....................................................................................... 11 Table 2: Trips per head of population per year by purpose 1998/2000 - United Kingdom.................................. 12 Table 3: Summary of Rail Elasticity Estimates from Studies in BTRE Database ................................................. 15 Table 4: Modal Shares in the Eu-15 1970-99 by passenger-kilometres ............................................................... 16 Table 5: Railroad market shares by country......................................................................................................... 16 Table 6: Modal split in US and Japan .................................................................................................................
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