Modelling public and private provision: The case of the railway services

Railway provision is often characterized by the intervention of either the public or private sector as network and/or infrastructure operator. In this paper we aim to develop a model of passenger railway provision where we assume that the public operator suffers a relative inefficiency. In relation to the public, private and the participation of both in the railway provision, we identify in the model different efficiency-based decision rules. The decision rules establish in which configuration welfare is maximized and bring to light the relative inefficiency of the public sector. The results give insight into how a reliable threat of private intervention can be used to maximize social welfare. © 2012 RSAI.