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Efficiency Measurement in Network Industries: Application to the Swiss Railway Companies

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Abstract

The persistence of increasingly high government subsidies in Switzerland’s railroads has led the federal and cantonal authorities to discussing the possibility of high-powered incentive contracts such as those based on cost efficiency benchmarking. Railways are however, characterized by a high degree of unobserved heterogeneity that could bias the efficiency estimates. This paper examines the performance of several panel data models to measure cost efficiency in network industries. The unobserved firm-specific effects and the resulting biases are studied through a comparative study of several stochastic frontier models, applied to a panel of 50 railway companies operating over a 13-year period.

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Authors and Affiliations

  1. Department of Economics, Center for Energy Policy and Economics, and Swiss Federal Institute of Technology ETH Zentrum, University of Lugano, WEC, 8092, Zurich, Switzerland

    Mehdi Farsi

  2. Department of Economics, Center for Energy Policy and Economics, and Swiss Federal Institute of Technology ETH Zentrum, University of Lugano, WEC, 8092, Zurich, Switzerland

    Massimo Filippini

  3. Department of Economics, Stern School of Business, New York University, 44 West 4th St., New York, NY, 10012, USA

    William Greene

Authors
  1. Mehdi Farsi
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  2. Massimo Filippini
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  3. William Greene
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Correspondence to Mehdi Farsi.

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* The authors wish to thank Michael Crew and two anonymous referees for their helpful suggestions. Aurelio Fetz provided an excellent assistance, which is gratefully acknowledged. Any remaining errors are the responsibility of the authors.

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Farsi, M., Filippini, M. & Greene, W. Efficiency Measurement in Network Industries: Application to the Swiss Railway Companies. J Regul Econ 28, 69–90 (2005). https://doi.org/10.1007/s11149-005-2356-9

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