Alternatively, a growing literature patronizes the use of full cost recovery prices, including price discrimination, multiple part tariffs or cross-subsidization schemes, if needed. Although it is reckoned that it might yield inefficient outcomes with regard to the theoretical efficiency principles, they constitute the second best available alternative in most cases.

Similarly, with respect to access pricing to a rail network, it is clear that it should be based on marginal cost pricing rules in a first best world. In practice, however, the achievement of this objective is difficult due to at least three reasons: the above described cost structure of the rail network, which cannot always be recovered with simple price rules; the asymmetric information problem faced by the regulator with respect to these costs; and the subsidy level that can be sustainable in the long-run.

Many econometric studies have shown that in the case of the rail industry, the marginal cost of still vertically integrated railways lies in the range of 60%-70% of average cost; where rail services are separated from infrastructure, the marginal social cost of rail infrastructure alone often is well below the 60%-70% range. (Friedlander _et al.,_ 1993). Price discrimination, if feasible and politically acceptable, might succeed in raising cost recovery to around 60% of total cost without driving demand off the market. Thus, full cost recovery would require a further price-mark-up of more than 60% above the efficient price. Alternative proposals, in terms of the so-called Ramsey pricing principle, have been defended for infrastructures with high fixed costs and low marginal costs. 2 However, they rarely work in practice, since they arouse consumers' suspicions of unfair treatment and undue discrimination. Moreover, under Ramsey pricing rules all unattributable fixed and common costs are apportioned on the basis of the services' demand characteristics.

In the current debate, a reasonable conclusion seems to advocate the adequate balance between the cost recovery issue and the efficient pricing rules, giving some preferential treatment to each one according to the case. In general, the issue remains unsolved and depends on how different countries have faced their access pricing problem. Whether a country's government is willing to assume these differences or not is, in most cases, a political question. In many cases, the ultimate challenge is how to price access to rail infrastructure in a transparent, efficient and non-discriminatory way. In Europe, for example, Directive 95/19 requires infrastructure managers to balance revenues with expenditures. In countries where revenues from operations and compensation from government for public service obligations are insufficient to provide a surplus for depreciation and investment, railways will be dependent on the State to fund or guarantee repayment on loans for investment. This continues to be the case in many of the countries of central and Eastern Europe.

# **5.3. - The access pricing problem.**

The development of tariffs for accessing rail infrastructure varies greatly among different

> **22** Ramsey pricing refers to charging larger prices above unit costs to more inelastic market segments. When infrastructure and services are separated, their use becomes more complicated and still is not clearly solved, since different demands for services - as well as for tracks - must be estimated.

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