Railways as Patient Capital

Oliver Lewis and Avner Offer ()

No _195, Oxford Economic and Social History Working Papers from University of Oxford, Department of Economics

Abstract: Why are railways mostly in the public sector? Interest rates define a time limit for markets. Projects with longer break-evens cannot be funded by business alone. Corporate ‘franchise’ arrangements overcome the limit by means of revenue guarantees which transfer risks to government. Innovations originate bottom-up in private enterprise. Positive externalities create demand for universal provision but scaling up cannot be financed commercially. In the British railway manias of the 1830s and 1840s speculative fever overwhelmed prudence. Overinvestment left an excessive infrastructure legacy and wiped out windfall profits. In other countries railways required external support. Expanding access give rise to stand-offs with investors which ended up in government regulation or takeover. The tramway boom of 1870 to 1914 followed this pattern, initially with horse power and then electricity. In the UK railway privatisation of the 1990s, the free market delusion was confounded by the infrastructure requirement for long-term commitment.

Keywords: Railroads; privatisation; project evaluation; public services; scope of government (search for similar items in EconPapers)
Date: 2021-05-01
New Economics Papers: this item is included in nep-his, nep-ppm and nep-reg
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