Abstract
The paper examines the issue of subsidy cuts and efficiency gains arisingfrom the first round of franchises from the British passenger rail privatisation. A problem is identified in past studies regarding the lack of a progressive dynamic between subsidy and efficiency over time. This paper assesses efficiency changes and productivity gains achieved by the British train-operating companies over an 8-year period, and then attempts to establish a statistical relationship between efficiency gains and subsidy cuts.Although such a relationship is established, the results more broadly indicate winner's curse syndrome and the strong negotiating position of the incumbent. (Author/publisher).