English Version
Abstract
This paper analyzes how institutional constraints determine organizational choices and investments decisions. More precisely, we examine how private parties adjust when policy makers impose a mode of organization with no or very little consideration for some major characteristics of the transactions this arrangement is intended to support. Our analysis uses original data related to the reform of the British rail industry. Notwithstanding their specific aspects, the problems raised by the radical transformation of this sector in the mid 1990s carry important lessons about what happens when a misaligned arrangement is implemented in a context that requires interfirm coordination.
This paper analyzes how institutional constraints determine organizational choices and investments decisions. More precisely, we examine how private parties adjust when policy makers impose a mode of organization with no or very little consideration for some major characteristics of the transactions this arrangement is intended to support. Our analysis uses original data related to the reform of the British rail industry. Notwithstanding their specific aspects, the problems raised by the radical transformation of this sector in the mid 1990s carry important lessons about what happens when a misaligned arrangement is implemented in a context that requires interfirm coordination.
I. Introduction
The radical reform of the British Rail system adopted in 1993 has generated vigorous debates among European policy makers, economists, and the press. Several factors explain how it attracted so much attention. First, there is of course the series of dramatic accidents that followed the reform and were largely viewed as its consequence. Second, this reform somewhat toped the round of radical reforms of public utilities initiated under Thatcher and was considered by many as capitalizing the accumulated experience. Third, although the European directive for reforming the railroad system in Europe was adopted in 1991, which was two years before the British reform, many policy makers and most of the public interpreted it as inspired by the latter.
Most analyses of this reform, as well as of reforms of public utilities in general, have focused primarily on the privatization issue and, to a lesser degree, on the nature of regulation and the role of regulators in the new configuration. This paper takes another course. It is an essay on organizational design, when policy makers interfere without paying attention to the transactions at stake. We examine problems that confront an institutional arrangement intending to introduce market forces and simultaneously imposing constraints that may prevent efficient decisions. We look at investments as a key variable. We do not look at the ex-ante political decision process that generated the arrangement, nor do we consider the expost consequences on prices or quality of the services provided. Our attention goes almost exclusively to the interaction between the mode of organization adopted and the investment strategies it induced. Our analysis relies on an original set of data relating to the reform of the British rail industry, with our attention focused on the passengers’ transportation segment. Notwithstanding specific aspects, problems raised by this radical transformation carry general lessons about what happens when organizational design does not take properly into account the coordination needs related to the transactions at stake.
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The radical reform of the British Rail system adopted in 1993 has generated vigorous debates among European policy makers, economists, and the press. Several factors explain how it attracted so much attention. First, there is of course the series of dramatic accidents that followed the reform and were largely viewed as its consequence. Second, this reform somewhat toped the round of radical reforms of public utilities initiated under Thatcher and was considered by many as capitalizing the accumulated experience. Third, although the European directive for reforming the railroad system in Europe was adopted in 1991, which was two years before the British reform, many policy makers and most of the public interpreted it as inspired by the latter.
Most analyses of this reform, as well as of reforms of public utilities in general, have focused primarily on the privatization issue and, to a lesser degree, on the nature of regulation and the role of regulators in the new configuration. This paper takes another course. It is an essay on organizational design, when policy makers interfere without paying attention to the transactions at stake. We examine problems that confront an institutional arrangement intending to introduce market forces and simultaneously imposing constraints that may prevent efficient decisions. We look at investments as a key variable. We do not look at the ex-ante political decision process that generated the arrangement, nor do we consider the expost consequences on prices or quality of the services provided. Our attention goes almost exclusively to the interaction between the mode of organization adopted and the investment strategies it induced. Our analysis relies on an original set of data relating to the reform of the British rail industry, with our attention focused on the passengers’ transportation segment. Notwithstanding specific aspects, problems raised by this radical transformation carry general lessons about what happens when organizational design does not take properly into account the coordination needs related to the transactions at stake.
Journals for full download on the link below
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