The Analysis Of Railway Restructure Based On Transaction Cost Theory

Based on transaction cost theory,this study provides a comparation of transaction costs between two alternative railway organizational structures,which are "vertical separation" and "horizontal separation".This study combines a two-stage game and transaction cost theory to analyze the resource of transaction costs under vertical separation structure.Transaction costs under vertical separation include general transaction costs caused by vertical separation structure(e.g.the network firm and operating firms negotiate about access fee),and special transaction costs(e.g.the network firm and operating firms sign short-term contracts would result in opportunism,which causes transaction costs).Under horizontal separation structure,transaction between the network and operation has been internalized,thus,there is no need to find out the transaction price between network and operation(e.g.access fee),which results in less transaction costs.This study analyzes the indirect impact of transaction costs on the incentives of investment in network in a two-stage game.This study shows that the incentive of investment in network comes from access charge under vertical separation,while the incentive of investment in network comes from transport revenue.Under horizontal separation,railroad firms directly receive benefits from the improvement of network quality,which results in high incentive of investment in network.While under vertical separation,the network firm receives benefits indirectly from the improvement of network quality by access charging.Due to high transaction costs under vertical separation,the network firm and operating firms can not discover an appropriate access charge,which results in lack of incentive of investment in network and potential risk of network quality.This study explores the transaction costs of two structures of railway reform by analyzing the railway reform of the United States,the EU and Japan based on transaction cost theory.In Great Britain,under vertical separation,the railway network firm finally goes bankrupt.In German,DB is in charge of both the network and operation.In France,the network and operation has been integrated.All these cases result from high transaction costs under vertical separation.Conversely,the success of railway reform of passenger market in Japan and freight market in the United States results from low transaction costs under horizontal separation.Thus,a general insight from this study is that if policy makers are willing to save transaction costs,horizontal separation would be a better choice than vertical separation in settings.