Given the vertical separation of infrastructure and operations in Britain's railway industry, it is necessary to price for the use of the infrastructure by train operators be they passenger franchise, freight or passengeropen access operators. An elementary result in microeconomics is that pricing at marginal cost will lead to an efficient outcome (in a first best world). In addition, several European Commission Directives (e.g. 2001/14/EC) have been issued which require railway infrastructure to be priced based on marginal (social) cost. As such determination of the constituent parts of marginal social cost of railway infrastructure use is both necessary to price access to the railways in an economically efficient way and to comply with the latest European Commission Directives. In addition, following the Hatfield accident in October 2000, Britain's railway network has experienced a cost explosion. A significant part of this explosion was in themaintenance of track and other infrastructure with maintenance expenditure of Railtrack, the then infrastructure manager, 71% greater in 2003/04 than in 1999/00 (or 41% greater compared to 1995/96, the first full year post privatisation). Although the Office of the Rail Regulator set Network Rail efficiency saving targets in the 2003 Access Charges Review, in preparation for the 2008 Periodic Review, analysis of best practice between railways across Europe is of substantial importance in order to continue to bring costs down to efficient levels. This paper contributes to both areas ofrailway policy. Estimates of the marginal wear and tear cost for the UK network are estimated based on an econometric analysis of data from Studiesreport large differences in marginal cost estimates. These differences are partly due to the impact of exogenous factors such as wage rates and differences in topography and so it is more appropriate to benchmark on usagecost elasticities, which control for these effects. For the covering abstract see ITRD E135582.
Abstract