Do network industries plan to eliminate inefficiencies in response to regulatory pressure? The case of railways in Great Britain

This paper outlines an econometric analysis of business planning data examining the scope for efficiency improvements of regulated firms in regulatory price reviews. Historical data may not fully reflect current industry cost structures, whereas forecast data offers evidence on cost evolution. Business Plans can provide useful information on planned elimination of inefficiencies in response to regulatory pressure. Network Rail submitted such data to the British railway regulator at the last Periodic Review (2013). Using a cost frontier model, the organisation’s business units are analysed to determine the extent of their plans to eliminate internal inefficiencies and response to regulatory incentives.