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Investment, reprocurement and franchise contract length in the British railway industy

Subject

Economics

Publication Year

2002

Abstract

This paper investigates the effects of contractual arrangements of firms operating in a regulated environment on their investment behaviour. It studies interaction between repeated auctions of rail franchise of different lengths, uncertaintly and incentives for investments in rolling stock, following the privatisation of British Rail. Theoretical predictions are tested empirically using a unique panel of data. Theory suggests that short franchise lengths reduce incentives to invest in specfic assets. Our empirical results that suggest that competition and strategic behaviour at the re-procurement stage can create incentives for delayed investment. Investing just before the end of the frachise enhances the incumbent's probability of having the contract re -awarded the provides it with a first-mover advantage, while raising the entry cost for other potential bidders.

Publication Research Centre

Regulation Initiative (closed)

Series Number

50

Series

Regulation Initiative Working Paper Series

Available on ECCH

No


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