The cost effects of investment coordination under alternative vertical structures in railway systems

The main purpose of this study is to investigate how structural separation policies (especially vertical separation and the holding company) affect the costs of the rail industry, and to explore the mechanisms through which these cost impacts occur. We contribute to the past literature by focusing on investment coordination/misalignment costs and how these might vary across different railway structures. We also provide a substantially more up-to-date view of the impact of rail reforms than in previous cost function studies. A total cost function is used with a dataset involving 33 European and East Asia railway companies (1994-2017). We find that there is no “one size fits all” vertical structure from the point of view of cost minimisation and that the optimal structure from a cost perspective depends on both train density and the intensity of infrastructure investment.