Coasian Hell: Thameslink

So I was talking about Coasian hell the other day. Here’s a great example. The franchisee of the Great Northern, Thameslink, and Southern railway routes decided to pay its penalty clauses in advance of taking over the franchise. Until September 2018, however bad the trains get, it won’t cost them any more than the £10m they already forked over. The whole apparatus of penalties is therefore completely meaningless because whatever happens, the payout will be the same. Unastonishingly, the trains are terrible.

5 Comments on "Coasian Hell: Thameslink"

  1. the DfT asserted that they felt the performance regime within the contract would actually not benefit passengers because of the amount of management time the DfT might have to spend ‘‘arguing over a huge number of detailed claims”. The DfT stressed to the committee that they believed they had made a reasonable assessment of the costs, based on what they believed would be the ‘worst case scenario of disruption’, so the amount was fair.


    1. That is a truly splendid piece of reasoning. “If you cock up and we fine you, you’ll spend months arguing over the fine. And if you’re spending months arguing with us, you won’t be able to run the railway properly, so you’ll cock up more. So we shouldn’t fine you.”

      It’s basically acknowledging that the railway values its customers _less_ than DfT does, and so can effectively hold them hostage.


  2. The question arises as to whether the up front payment made by the private rail companies for anticipated future failures represents a smaller or larger sum than the savings made by the companies from not running services by cancelling them?

    An operating model with fascinating possibilities for the imaginative rent seeker.


    1. This is essentially the “cost of mitigating pollution is less than the fine for polluting” business model applied around the developed world, except with payment up front. (And in fairness, the developed world model also includes “really pollute things in a way that will only be evident in 30 years when people start dying, but be out of business by then, so the government foots the bill.”)


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