Estimating the damage and marginal cost of different vehicle types on rail infrastructure: combining economic and engineering approaches

EU legislation requires that European infrastructure managers set access charges based on the marginal cost of running trains on their networks. Two methods have been used in the literature for this purpose. Top-down methods relate actual costs to traffic volumes. Bottom-up methods use engineering models to simulate damage and then translate damage into costs based on assumptions about interventions and their unit costs. Whilst top down methods produce sensible results for marginal cost overall, they have struggled to differentiate between traffic types. The challenge for bottom-up approaches is how to translate damage into cost, with numerous assumptions being required which may be invalid. This paper proposes a new, two stage approach to estimating the marginal cost of rail infrastructure usage. The first stage uses engineering models to simulate damage caused by vehicles on the network. The second stage seeks to establish a statistical relationship between actual costs and damage. It is thus possible to convert damage estimates into costs using actual cost data, rather than through a set of potentially invalid assumptions as in previous approaches. Only the first stage is implemented in this paper. We show that it possible to produce total (annualised) damage measures for three damage mechanisms on five actual track sections in Sweden. Once extended, it will be possible to model the relationship between damage and actual costs for the first time; and thus better understand the relative costs of the different damage mechanisms and in turn inform the level and structure of track access charges

Lowering Transport Costs and Prices by Competition: Regulatory and Institutional Reforms in Low Income Countries

High passenger and freight transport costs are a barrier to economic growth and social mobility, particularly in Low Income Countries (LICs). This paper considers the current state of knowledge regarding the barriers to achieving lower generalised transport costs. It considers both the road and railway modes across passenger and freight transport. These issues include a reform on the regulations for driver hours (preventing the road infrastructure from overloading), structuring rail concessions, increasing competition, and tackling corruption. Such reforms aim to deliver efficiency gains and service quality improvements at lower costs for users. This paper identifies the knowledge gap in previous research and concludes by setting out a research agenda that builds the evidence base for how the best practices from around the world can best be applied to the specific circumstances in Low Income Countries, with a particular focus on Sub-Saharan Africa and South Asi

The role of international benchmarking in developing rail infrastructure efficiency estimates

International cost efficiency benchmarking played a central role in informing the Office of Rail Regulation's (ORR) determination of Network Rail's future funding during the 2008 periodic review (PR08) of the company's finances. This paper sets out how international benchmarking can inform a regulator's decisions on efficiency and, in particular, how international econometric studies can be used alongside other evidence in the regulatory context. We start by reviewing the use of previous international benchmarking work. We then set out the data, methodology and results in respect of the two separate econometric studies carried out as part of PR08. The further work that was done in support of the econometric results is then described. The paper shows that top-down econometric techniques, combined with bottom-up engineering analysis produced a robust comparison between Network Rail and its peers. We conclude by outlining how the econometric results were used, in conjunction with other evidence, to reach a final efficiency determination, and how we consider that international benchmarking can be applied by other regulators.Regulation Efficiency Stochastic frontier analysis Benchmarking

Assessing the Marginal Infrastructure Maintenance Wear and Tear Costs for Britain's Railway Network

This paper applies econometric methods to estimate marginal track maintenance cost in Britain - for the first time. The British case is the most radical example of rail reform in the world, and the 2005 Railway Act has resulted in a new and unique regulatory process for determining funding and service levels, where the marginal cost of changing service patterns will be a key input. Cost elasticity and marginal cost estimates are reported and compared against the results of the engineering-based approaches currently used to set variable access charges in Britain, and also against those reported for other countries. The relationship between traffic density and elasticity and marginal cost estimates is explored. The paper also discusses the potential biases introduced into elasticity and marginal cost estimates when dealing with a railway that may be out of steady state, and how to adjust for these. © 2008 LSE and the University of Bath

Exploring the effects of passenger rail franchising in Britain: Evidence from the first two rounds of franchising (1997–2008)

This paper provides an up-to-date review of the previous literature concerning the impact of passenger rail franchising on productivity and costs in Britain, and also presents important new evidence. In particular, the extension in time of previously-used datasets offers the first opportunity to study the impacts of re-franchising. The previous literature emphasised the failure of franchising to produce sustained productivity gains, with a sharp deterioration in productivity after 2000. The new evidence presented offers a somewhat more positive view of the British experience. It suggests that part of what was previously considered to be falling productivity may in fact be due to exogenous changes in diesel prices. Further, new data suggests that the recent increases in costs have resulted in higher quality of service. Finally, competitive re-franchising, and the associated unwinding of short-term management and re-negotiated contracts, seems to have led to improvements in productivity between 2006 and 2008. Nevertheless, it remains the case that passenger rail franchising in Britain has failed to reduce costs in the way experienced in many other industries and in rail in other European countries. The evidence is that somewhat larger franchises, avoiding overlapping and optimising train density and length, should reduce costs. We also speculate that the major increase in wages and conditions of staff might be moderated by longer franchises, although that remains to be proved. This re-appraisal of the British case is important in the context of the wider international interest in the use of franchising in passenger rail, and its relevance to the current review of ways of introducing competition into the domestic rail passenger market in Europe

Exploring the effects of passenger rail franchising in Britain: Evidence from the first two rounds of franchising (1997-2008)

This paper provides an up-to-date review of the previous literature concerning the impact of passenger rail franchising on productivity and costs in Britain, and also presents important new evidence. In particular, the extension in time of previously-used datasets offers the first opportunity to study the impacts of re-franchising. The previous literature emphasised the failure of franchising to produce sustained productivity gains, with a sharp deterioration in productivity after 2000. The new evidence presented offers a somewhat more positive view of the British experience. It suggests that part of what was previously considered to be falling productivity may in fact be due to exogenous changes in diesel prices. Further, new data suggests that the recent increases in costs have resulted in higher quality of service. Finally, competitive re-franchising, and the associated unwinding of short-term management and re-negotiated contracts, seems to have led to improvements in productivity between 2006 and 2008. Nevertheless, it remains the case that passenger rail franchising in Britain has failed to reduce costs in the way experienced in many other industries and in rail in other European countries. The evidence is that somewhat larger franchises, avoiding overlapping and optimising train density and length, should reduce costs. We also speculate that the major increase in wages and conditions of staff might be moderated by longer franchises, although that remains to be proved. This re-appraisal of the British case is important in the context of the wider international interest in the use of franchising in passenger rail, and its relevance to the current review of ways of introducing competition into the domestic rail passenger market in Europe.Competitive tendering Franchising Rail Productivity Efficiency

The role of international benchmarking in developing rail infrastructure efficiency estimates

International cost efficiency benchmarking played a central role in informing the Office of Rail Regulation's (ORR) determination of Network Rail's future funding during the 2008 periodic review (PR08) of the company's finances. This paper sets out how international benchmarking can inform a regulator's decisions on efficiency and, in particular, how international econometric studies can be used alongside other evidence in the regulatory context. We start by reviewing the use of previous international benchmarking work. We then set out the data, methodology and results in respect of the two separate econometric studies carried out as part of PR08. The further work that was done in support of the econometric results is then described. The paper shows that top-down econometric techniques, combined with bottom-up engineering analysis produced a robust comparison between Network Rail and its peers. We conclude by outlining how the econometric results were used, in conjunction with other evidence, to reach a final efficiency determination, and how we consider that international benchmarking can be applied by other regulators

Damage or no damage from traffic: Re-examining marginal cost pricing for rail signalling maintenance

This paper re-examines the implementation of the short run marginal cost (SRMC) pricing principle with respect to rail infrastructure usage and empirically tests if there are rail infrastructure maintenance costs triggered by traffic but not caused by asset damage from traffic. This is important because current EU legislation stipulates that only costs related to infrastructure wear and tear from traffic are eligible for the direct cost-based element of track access charges. An econometric approach is applied to French panel data on signalling maintenance costs. The results show that the SRMC for infrastructure provision of these assets is not only related to asset damage costs caused by traffic, but can also be due to economic factors linked to increased line capacity utilisation: 1) higher cost per maintenance activity, and/or 2) increased preventative maintenance to curb delays. Our work offers an explanation as to why econometric and engineering approaches give different views of rail infrastructure cost variability and suggests that EU legislation on track access pricing may need to be revised

Estimating the relative cost of track damage mechanisms: combining economic and engineering approaches

This paper proposes a new, two-stage methodology to estimate the relative marginal cost of different vehicle types running on rail infrastructure. This information is important particularly where infrastructure managers wish to differentiate track access charges by vehicle type for the purpose of incentivising the development and use of more track friendly vehicles. EU legislation requires that European infrastructure managers set access charges based on the incremental (marginal) cost of running trains on their networks. The novelty of the approach derives from the combination of: (1) engineering simulation methods that estimate the track damage caused by rail vehicles; and (2) econometric methods that estimate the relationship between actual maintenance costs and the different damage mechanisms. This two-stage approach fills an important gap in the literature, given the limitations of existing “single-stage” engineering or econometric approaches in obtaining relative marginal costs for different types of damage. We demonstrate the feasibility of the method using 45 track sections from Sweden, for which we have data on maintenance costs together with relevant track and vehicle data for 2012 (supplied by the Swedish Transport Administration). We demonstrate the feasibility of producing summary, section-level damage measures for three damage mechanisms (wear, rolling contact fatigue and settlement) which can be taken forward into the second stage. The second stage econometric results indicate that it is possible to obtain sensible relationships between cost and the different damage types – and thus produce relative marginal costs by damage mechanism and in turn vehicle type. Based on this feasibility study, settlement is found to be the most costly (in terms of maintenance cost) of the three mechanisms, followed by rolling contact fatigue and then wear. Future applications should focus on larger datasets in order to produce the required degree of precision on the marginal cost estimates

Exploring public perceptions and support for green infrastructure funding mechanisms: a study of the Oxford–Cambridge Arc, England

The uptake of green infrastructure is challenged by a lack of access to financing. Studies have investigated individuals’ economic valuation of green infrastructure but understanding public perceptions of a range of potential funding mechanisms is a fundamental step in developing funding measures. Using data collected from a sample of residents in the Oxford–Cambridge Arc, England, this study addresses a gap in our understanding of public perceptions of green infrastructure funding by investigating support for several funding mechanisms, and the extent to which support is associated with attitudinal, contextual and personal capability variables. Results indicate that respondents prefer the funding of small and large-scale infrastructure to be covered by developers, with most opposition being levelled at those involving additional financial obligations from citizens. Altruistic-biospheric values, pro-environmental behaviour and trust in the government significantly affected support. These findings provide valuable insight to policymakers attempting to introduce sustainable green infrastructure funding streams.</p