Benchmarking of Train Operating Companies – A Transaction Cost Efficiency Analysis

Benchmarking of rail firms has become a matter of substantial interest and many authors have emphasised the importance of transaction costs in regard to assessing the desirability of vertical separation. However, due to data and methodological limitations, previous rail efficiency studies have been unable to explicitly analyse the role that transaction cost measures play in determining the relative efficiency performance of different rail firms or rail systems. This paper incorporates recently-produced measures of transaction costs (Merkert 2008) into a two-stage bootstrapped data envelopment analysis (DEA), applied to a sample of 43 Swedish, German and British train operating firms. In the first stage, the number of transaction staff is included as a separate (physical) input within the DEA. This is followed by a second-step Tobit regression which seeks to evaluate the impact of institutional (vertical separation and type of operation), environmental (competition) and transactional (monetary values of transaction costs) factors on technical efficiency. The results of the analysis show that transactional factors are more important in determining technical efficiency than institutional factors and the opening-up of competition.