Rail Privatisation: The Economic Theory

The purpose of this paper is to examine the relevance of economic theory to the rail privatisation proposals contained in the Railways Act 1993. After a review of the latest rail privatisation literature four major themes emerged:

(1) Contestability and Barriers to Entry.

(2) Franchising.

(3) Vertical Integration.

(4) Horizontal Integration.

Following a short review of the rail privatisation proposals the paper presents each theme in the context of the proposals. In conclusion, we highlight a number of future issues which will require monitoring and research in the future. In particular, we identify a number of hypotheses, put forward by both those in favour and against the Government's proposals, that should be tested.