Regulation impact on efficiency of railways

Institute for Transport StudiesFACULTY OF ENVIRONMENT

Regulation impact on efficiency of railways

Valerio Benedetto – PhD Student

Summary

1. Regulation impact

2. Rail Liberalisation Reports and Index

3. RLI-based regulatory index

4. Regulation variable in econometric model

5. Ideal regulator role and characteristics

1. Regulation impact: Framework

Aim: Effects on costs

Direct Indirect

Pressure on Through

Infrastructure non-discrimination /

Managers competition

Methodologya) Review of IBM’s Rail Liberalisation Reports

b) Construction of regulation indices for 17 European rail systems

c) Econometric analyses involving these indices

d) Qualitative work on ideal regulator characteristics

2. Rail Liberalisation Reports and Index

Macro-areas1. Legislative transposition of E.U.

directives and regulations

2. Effective implementation of these policies

3. Competitive characteristics of the market

Selected drivers1a. General aspects of regulatory body

1b. Object of regulation

1c. Authority’s powers

2a. Licensing

2b. Safety certificates

2c. Homologation of vehicles

2d. Train path access conditions

2e. Infrastructure charging system

3a. Volume of market open to entry in specific segments

IBM reports: overview on rail liberalisation processes across Europe

3. RLI-based regulatory index: Construction stages

Driver / Score 1 5 10

Transparency of competence of

Regulatory AuthorityNo Yes, but without

documentationYes, with

documentation

I. Collection of data from reports issued in 2002, 2004, 2007 and 2011

II. Scores (S) for each driver (D) from 1 (min) to 10 (max)

III. Identical weights (W) throughout the interval taken from 2011 report

IV. Calculation of overall scores (OS) for each country (CY)

V. Interpolation for gap years (average scores)

CY 1 2002 2004 2007 2011

OS 3.80 7.10 8.60 10.00

CY 1 W S02 (S*W) S03 (S*W) S04 (S*W) S05-06 (S*W) S07 (S*W) S08-10 (S*W) S11 (S*W)

D1 0.30 1 0.30 3 0.90 5 1.50 7.5 2.25 10 3.00 10 3.00 10 3.00

D2 0.70 5 3.50 6.5 4.55 8 5.60 8 5.60 8 5.60 9 6.30 10 7.00

OS 3.80 5.45 7.10 7.85 8.60 9.30 10.00

Driver / Weight W02 W04 W07 W11

D1 0.35 0.35 0.40 0.30

D2 0.65 0.65 0.60 0.70

Driver / Weight W02 W04 W07 W11

D1 0.30 0.30 0.30 0.30

D2 0.70 0.70 0.70 0.70

4a. Econometric dataset and model

• IBM-based regulatory indices variable estimating the impact of regulation on rail efficiency ()

• This is inserted into the Mizutani-Uranishi dataset (2012), also utilised in the EVES-Rail report (2012)

• For the period 2002-2010, 130 observations are generated

• The model is based on a translog cost function in which, besides usual parameters related to output, inputs, network and market structure, the regulation variable plays an important role

4b. Further work

i. Data

• Pre-2002 data for regulation is sought for, aiming at expanding the interval back to 1994 (when original dataset starts)

ii. Model specification

• Effects due to the inclusion or exclusion of certain variables (e.g. vertical integration, holding company, Train-km as output variables) need to be investigated to obtain a sensitive specification of the model

iii. Study of freight competition

• Significance of competition in freight sector should be deeply analysed through a separate model (related form and variables to be selected)

iv. Measurement issues

• Factors such as depreciation, outsourcing, cross-subsidisation and public intervention require better modalities of measurement

5a. From IBM-based index to ideal regulator questionnaire

I. Stability and predictability

Avoiding frequent planning modifications in relation to infrastructure or transport services that are required by short-term political aims

II. Non-discrimination

Connected with situations in which certain actors enjoy advantageous conditions for access to relevant infrastructure

III. Distinction of responsibilities

In order for the authority to be able to provide accountability for its choices and measures

Is the regulatory index capturing all the relevant themes? Can it be improved? Which are the characteristics of an ideal

rail regulator? 7 key areas found in literature

5a. From IBM-based index to ideal regulator questionnaire

IV. Human and financial resources

Relevant to the development of regulatory tasks

V. Transparency

Displaying in a public way the process and the results that substantiate specific decisions

VI. Pro-activity and effectiveness

Planning to intervene on issues even when this has not been required by business, constituting thereby autonomous capabilities for analysis and

interventions

VII. System efficiency

Power of obtaining data on efficiency and measures contrasting imperfect allocation of resources

5b. Questionnaires on ideal regulator

• This process has led to the formalisation of a questionnaire on the ideal rail regulator characteristics in order to assess the current European scenarios in this field

• Two versions of this questionnaire:

a) For regulators and governments

b) For infrastructure managers and railway undertakings

• Questions cover the 7 key areas above

• Thanks to your co-operation, your answers to version b) will be collected to perform quali-quantitative analyses