Technical Efficiency versus Technical Change – the British Passenger Train Operators

This paper considers the technical efficiency gains that have been achieved since privatisation of the British passenger railway. This is done through estimation of a stochastic efficiency frontier, with efficiency gains split between those arising through technical change and those arising out of management technical performance i.e. total factor productivity. The results suggest that most of the efficiency improvement since privatisation has come from technical progress rather than through efficiency improvements per se. ‘Technical progress’ in this case however may relate more to changes in management practices, operational practices and scheduling, rather than through capital investment. These improvements in productivity are found to be lower than similar estimates for the nationalised operator British Rail (BR). This is particularly notable for productivity gains achieved during the sectorisation period of BR (i.e. 1984 to 1992), with productivity gains found to be around twice the average TOC figure. Finally, the effect of company size on efficiency is examined. This indicates that larger train operating companies are generally associated with lower levels of efficiency. This relationship is found to still be present when the type of operations are taken into account, hence suggesting negative returns to scale i.e. small is good. This last aspect however requires further research to establish the robustness of these findings.