The objective of this paper is to inform the debate on how efficiency targets for Network
Rail (formerly Railtrack) should be set during the 2002/03 Interim Review and beyond.
Given the problems experienced during the 2000 Periodic Review, which focused on
external benchmarks,we propose an internal benchmarking approach, drawing on data for
seven geographical zones within Railtrack. Our approach mirrors the yardstick
competition method used in other UK regulated industries. Two efficiency measurement
techniques are applied to this data. Our results suggest that Railtrack (as a whole) delivered
substantial real unit cost reductions in the early years after privatisation, although these
savings were largely offset by the post-Hatfield cost increases. However, looking forward,
zonal efficiency differences suggest that the company could make significant savings in
future years by applying best practice consistently across the network
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