The contributions of technical and allocative efficiency to the economic performance of European railways |
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Authors: | Antonio Couto Daniel J Graham |
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Institution: | (1) Transport Infrastructure Division, Faculty of Engineering, University of Porto, Rua Dr. Roberto Frias, 4200-465 Porto, Portugal;(2) Centre for Transport Studies, Imperial College London, London, SW7 2AZ, UK |
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Abstract: | This paper provides an empirical analysis of the relative contributions of allocative and technical efficiency to the productivity
performance of European railways over the period 1972 to 1999. A stochastic frontier approach is used to analyse the cost
structure of the railway industry. We estimate a translog cost system in which allocative inefficiency is modelled through
an exact relationship between the cost share equations and the cost function. To allow the estimation of such a model using
the sample theory approach we assume that the share equation residuals represent deviations from first-order conditions and,
therefore, that they represent exclusively allocative inefficiencies. The use of this simplifying assumption renders our analysis
computationally tractable, but it could be inconsistent with the economic theory of duality and for that reason caution is
required in interpretation of results. Acknowledging this caveat, we find that European railways have experienced significant
cost increases due to inefficient behaviour, with a mean value of around 15%. In contrast to previous studies, however, our
estimates indicate a larger role for allocative inefficiency, which accounts for around of a half of the total increase in
cost inefficiency.
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Keywords: | Cost function Stochastic frontier Efficiency Productivity Railway |
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