The impacts of regulatory structures on the efficiency of European railway systems

Amongst the reforms altering the European railway industry in the last two decades, the new provisions on rail (or transport) regulators’ renovated powers and independence have been little analysed by the literature. This study aims to quantitatively determine the impact of economic regulation on European railways efficiency and qualitatively identify the role of rail regulators across Europe.
The quantitative analysis considers a sample of European railway systems for the period 2002-2010, and measures economic regulation by employing a purposely developed index rather than dummy variables, as widely utilised by previous literature. The findings differ depending on the way outputs are measured, with regulation producing cost reductions either when combined with vertical separation or when accompanied by competition. However, the combined impact of vertical separation and average levels of regulation only reduces costs when train density is below the sample mean.
The qualitative analysis is based on the design of a questionnaire on rail regulation, collecting first-hand evidence from 20 regulators, infrastructure managers and railway operators across Europe. The questions take into account the findings of a specific literature review on a set of ideal characteristics germane to regulators in railways and comparable industries. Regulators seem to have achieved the necessary requirements in order to effectively operate. Independence is guaranteed on paper and in action, high levels of transparency render regulators accountable, and when intervention is requested, their responses appear prompt. On the other hand, the approval of track access charging schemes, together with the monitoring of the efficiency and quality of the infrastructure managers’ performances, only at times fully involves the regulators.
Overall, from both analyses a complex scenario emerges, wherein strong economic regulation produces greater benefits in lightly dense contexts and when accompanied by vertical separation and effective competition.