Deregulating the European railway industry: Theoretical background and practical consequences

It is well known that a pure privatization policy for the railway sector, as it has been implemented in the US, can solve financial problems, but the price which society has to pay for this policy is that the railway companies have to give up considerable parts of the transport market. As this contradicts the objectives of European transport policy, other ways must be found to increase the market efficiency of the railways without losing the benefits for the environment which stem from substituting car/air travel and road haulage by rail transport. One of these ways is to subdivide the railway system into (at least) two distinct organizations: a network company which is publically owned, controls the investments, and sells network capacity units at prices compatible with public goals, and a set of operation companies which operate on private accounts and maximize profits. The relationships between the government, the network, and the operation divisions may be formulated as principle agents problems. In the paper the decision levels of the publically controlled network cooperation, the operation companies, and the users are defined. The decision problems on each level are described in formal terms and the interfaces between these three levels are pointed out. Finally, some approaches to reorganize the railway system in Europe are described and lessons for the German case, where a new structure for the organization is crucially needed because of the new political situation after the German unification are derived.