?Engines of Extravagance?: The privatised British railway rolling stock industry

The privatisation of Britain's railways involved not only the transfer to private ownership but also the break-up of a previously integrated industry. Under the government's plan the railway's passenger rolling stock was sold to three rolling stock companies (or ?ROSCOs?). This paper focuses on the role of the ROSCOs in the rail industry and their financial performance, critically examining the available literature and in particular the use that has been made of Transaction Cost Economics (TCE) to analyse the relations between ROSCOs and train operators, as well measuring their profitability from financial statements. The ROSCOs have been able to charge excessively high lease rentals to the train operating companies (TOCs). Analysis based on TCE which argues that ROSCOs have taken on serious risk to justify these returns (of default by a TOC, or of holding rolling stock surplus to requirements) has been misplaced, failing to see the dysfunctional nature of the market and the implicit government guarantee to maintain services. The paper finds that the ROSCOs need to be regulated and more transparent in their dealings with both train operators and the public.