Specific Investments and Ownership Structures in Railways – An Experimental Analysis

Thomas Ehrmann (), Karl-Hans Hartwig (), Torsten Marner () and Hendrik Schmale ()
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Thomas Ehrmann: Institute of Strategic Management, Muenster
Torsten Marner: Institute of Transport Economics, Muenster
Hendrik Schmale: Institute of Strategic Management, Muenster

No 12, Working Papers from Institute of Transport Economics, University of Muenster

Abstract: We analyze the impact of different organizational structures on incentives to invest in railways: vertical integration, vertical separation, and a hybrid form. Economic theory predicts that vertical integration fosters socially optimal investment, whereas, due to potential hold-up problems, both vertical separation and hybrid forms cause severe underinvestment. We test these theoretical predictions in a laboratory experiment and find evidence that, in a vertically integrated environment, the level of investment in rolling stock and in rail infrastructure is roughly socially optimal. The complete absence of a discrepancy in our experimental results between vertical separation and the hybrid organisational structure, contradicting the predictions of model-theory, is surprising and can be attributed to the relatively high investments in the separated model. This contradiction might also be explained by the existence of social preferences.

Keywords: game theory; vertical separation; railways; experimental economics (search for similar items in EconPapers)
JEL-codes: C70 C91 L92 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2009-10
New Economics Papers: this item is included in nep-exp
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:mut:wpaper:12

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