Technical efficiency of European railways: a distance function approach

This study has two principal objectives. The first objective is to measure and compare
the performance of European railways. The second objective is to illustrate the
usefulness of econometric distance functions in the analysis of production in multioutput
industries, where behavioural assumptions such as cost minimization or
profit maximization, are unlikely to be applicable. Using annual data on 17 railways
companies during 1988± 1993, multioutput distance functions are estimated using
corrected ordinary least squares (COLS). The resulting technical efficiency estimates
range from 0.980 for the Netherlands to 0.784 for Italy, with a mean of 0.863. The
distance function results are also compared with those obtained from single-output
production functions, where aggregate output measures are formed using either total
revenue or a Tornqvist index. The results obtained indicate substantial differences in
parameter estimates and technical efficiency rankings, casting significant doubt upon
the reliability of these single-output models, particularly when a total revenue measure
is used to proxy aggregate output.