The role of international benchmarking in developing rail infrastructure efficiency estimates

International cost efficiency benchmarking played a central role in informing the Office of Rail Regulation’s (ORR) determination of Network Rail’s future funding during the 2008 periodic review (PR08) of the company’s finances. This paper sets out how international benchmarking can inform a regulator’s decisions on efficiency and, in particular, how international econometric studies can be used alongside other evidence in the regulatory context. We start by reviewing the use of previous international benchmarking work. We then set out the data, methodology and results in respect of the two separate econometric studies carried out as part of PR08. The further work that was done in support of the econometric results is then described. The paper shows that top-down econometric techniques, combined with bottom-up engineering analysis produced comparison between Network Rail and its peers. We conclude by outlining how the econometric results were used, in conjunction with other evidence, to reach a final efficiency determination, and how we consider that international benchmarking can be applied by other regulators. * Dr Andrew Smith is a lecturer in transport economics at the Institute for Transport Studies, University of Leeds. Phill Wheat is a research fellow at the same institution. Greg Smith is a regulatory economist at the Office of Rail Regulation. We would like to thank Gerard Dalton of the International Union of Railways (UIC), Network Rail and the other infrastructure managers who provided data to us and worked with us during the course of this study.