Research On Institution Of Rail Passenger Transport Based On Transaction Cost

The rail passenger transport system in China must be the busiest and the most complicated one in the world. But this system is still semi-closed and shows various problems, such as mixed government functions & enterprise functions, undivided passenger transport & cargo transport, undefined railway network management & transportation management, unclear property rights, inefficient organizations, excessive government regulation, authority-oriented operations with neglection of contracts, which brings high transaction costs and lagging development. Since the operation of China's rail transportation system has been characterized by integrated management of passenger transport, cargo transport and railway network (from early 2001 to the first half year of 2003, the Ministry of Railways used to carry out trial implementation of divided passenger transport and cargo transport and railway network shortly), many previous dependent researches on China's rail passenger transport were subordinate to rail transportation industry researches and usually focused on safety management, quality control, improvement of work style, development of potential capacity, etc. At present, there're extremely rare independent researches on rail passenger transport, especially institutional arrangement. This is inappropriate as China's rail passenger transport plays a highly significant role in national economic system. On one hand, railway freight transport system shoulders a huge responsibility during China's national economic development, the contradiction between transportation capacity & traffic volume is remarkable, and the influence from the big companies & the big goods owners are powerful in the institutional game. On the other hand, the researches in China are starting and the knowledge about the institution is very limited. From the angle of the Transaction Cost Economics, this paper conducts special research on rail passenger transport in China and proposes methods and concrete models for settling various problems in China's rail passenger transport, which focuses on saving transaction costs. The major researches in this paper include:â… . With a comprehensive introduction on institutional arrangement related to rail passenger transport, the author puts forward three basic problems in institutional arrangement of China's rail passenger transport:synchronization effects of institutional researches and rail passenger transport development; effective institutional arrangement of China's rail passenger transport calls for promotion and support of state-of-the-art theory of the Neoinstitutional Economics; being a kind of secondary institutional arrangement, the institutional arrangement of China's rail passenger transport helps to promote that of the higher class. By means of summarizing institutional theory, corporate management & corporate organization theories and new property rights theories based on transaction costs, the author points out that:a) The progress of China's rail passenger transport is consistent with the efficiency of institutional arrangement. Once institutional arrangement gets close attention and the effective institutional arrangement is selected, the development of rail passenger transport would be accelerated. On the contrary, the development would be lagged. There is a significant synchronization effects between them. This is a common trend in global development of rail passenger transport. b) To realize effective institutional arrangement of China's rail passenger transport, we need sufficient penetration and support of theories. The introduction and promotion of the Neoinstitutional Economics are urgent. Only after more railway economists and specialists at all levels get familiar with the transaction cost theory, property rights theory, contract theory and state theory of the Neoinstitutional Economics and apply these theories consciously into the practice, can more efficient institutional arrangement be widely accepted. c) The institutional arrangement of rail passenger transport depends on institutional environment. It is a kind of secondary institutional arrangement. But vice versa, it promotes/weakens (the efficiency of) institutional arrangement of the higher class-including institutional arrangement of the entire railway system and traffic system or even institutional arrangement of the entire country.â…¡. In this paper, institutional evolvement of rail passenger transport is summarized. Transaction Cost Theory and Game Theory is used to analyze several institutional evolvements of China's rail passenger transport in the past. The author summarizes objective structure and subjective game model for these institutional evolvements, and describes the mechanism that triggered the institutional arrangement. The author proposes that:The game in institutional arrangement of China's rail passenger transport is a process of evolvement along equilibrium points. There can be 2 specific modes. Mode 1:Participants carry out "dispersion tests" on new strategies from the given strategy set. When more and more participants agree with each other to a critical scale, there will be a spontaneous order and a new passenger transport system will appear. Mode 2:Changes of equilibrium are promoted by the design from the new participants or organizations. By means of such promotion, when the number of game participants that select new design reaches a critical scale, a new equilibrium will take the place of the precious one and the institutional evolvement comes accordingly. â…¢. Used to Transaction Cost Theory, repeat to confirm the effectiveness and indicate relevant constraints about the railway network and transport should be separated. In some given conditions, China's rail passenger transport will be more efficient after the railway network and the transport were separated, can save significantly the transaction cost. From the actual situation of China's railway, on most of the regional and lines, Accord with basic conditions of the separation of the railway network and transport, can and should be it.â…£. In this paper, the author builds a model for institutional arrangement of property rights of China's rail passenger transport system and proposes implementation steps. Inefficient institutional arrangement of property rights is a root cause for existing problems in institutional arrangement of China's rail passenger transport. Efficient institutional arrangement of property rights can save transaction costs and helps to maintain equilibrium in each institution of rail passenger transport. Based on the inherent defects of co-ownership, the author proposes a mode of denationalization of rail passenger transport system:joint-stock (major mode), private (open mode), or state-owned private-operated (modified mode) as appropriate. Implementation steps: reform of national railway first, improvement of legislation first and sufficient supporting facilities first.â…¤. In this paper, the author has a new insight into the management mechanism of China's rail passenger transport. In view of institutional arrangement, the management mechanism of China's rail passenger transport has been inefficient for years. By means of institutional analysis, the author proposes new idea:there're sufficient objective conditions for commercialization of rail passenger transport. Internal logic of new institutional arrangement:commercialization of rail passenger transport, separation of rail passenger transport from cargo transport & railway network management (special passenger lines excluded), reconstruction of rail passenger transport system, and implementation of regional corporate management. Before realization of this target mode, the author also recommends current transition mode and the essential supplement mode.â…¥. From the angle of saving transaction costs, the author proposes the proper scale and internal management structure of regional rail passenger transport company. China's rail passenger transport system should be reconstructed according to a certain economic principle-saving transaction costs. A proper-scale, regional and professional passenger transport company helps to realize low transaction costs. In this paper, the author compares several reconstruction plans for rail passenger transport companies of different scales to fully demonstrate how to save transaction costs. Unlike microeconomics where internal corporate organizational structure usually depends on leader's favor in centralization or decentralization of power, the author holds that, the efficiency of corporate organizational structure depends on its capacity in saving transaction costs, and the factors that affect transaction costs include:asset exclusivity, contracts, information processing, fund allocation, and speculation. Thus, an M-shaped organizational structure with micro capital market characteristics is a good choice for regional professional passenger transport companies.â…¦. From the angle of saving transaction costs, the author analyzes the efficiency of and improvement measures for government controls on China's rail passenger transport. Sometimes, government control is unnecessary. Sometimes, it's helpful. Yet, the benefits of government control are usually exaggerated. What we need is an efficient institutional arrangement. The author holds that, government control on different industries should be subject to specific institutional environment. There should be comparison analysis of specific plans, so as to select institutional arrangement that helps to save more transaction costs. For China's rail passenger transport, introduction of competition, simplification of rules, open operations and proper control are feasible choices.â…§. By case analysis, the author discusses the incompleteness of rail passenger transport contracts and corresponding control methods for it. Contract theory is the core of the Neoinstitutional Economics, where it is believed that all economic issues can be treated as contractual issues. In this paper, the author makes the best of the theory to study organizational scale of rail passenger transport and abstract organizations and related elements as contractual relationship for analytical purpose. To further demonstrate the theory, the author conducts positive analysis on the incompleteness of China's rail passenger transport contracts and control methods for it. Conclusion:when we treat various problems in management and institutional arrangement of rail passenger transport as contractual problems, we can easily acquire reasonable solutions as long as we find the contractual relationship that is more likely to save transaction costs. This paper provides an important method for researches on institutional arrangement of rail passenger transport.