Does Vertical Separation Reduce Cost? An Empirical Analysis of the Rail Industry in OECD Countries


The main purpose of this study is to analyze structural separation policies, especially vertical (i.e. operation-infrastructure) separation and horizontal (i.e. passenger-freight service) separation. Using the total cost function of a railway organization, we evaluate whether or not vertical separation and/or horizontal separation can reduce costs. For this analysis, we select 30 railway organizations from 23 OECD countries over 14 years, from 1994 to 2007. Our findings show that because the horizontal separation dummy has a negative sign with statistical significance, horizontal separation can be seen to reduce the cost of a railway. The effect of the vertical separation changes according to the train density of a railway organization. With lower train density, vertical separation tends to reduce cost, while with higher train density vertical separation increases cost.

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