in which a rail regulator may be interested. In the context of concession contracts described in previous sections of this paper, where a number of private companies are potentially franchise operators in the rail industry, the regulatory agency should define those indicators that best suit its information needs.

Some final practical rules that could be helpful in this process are the following ones: (i) each indicator should have at least a function or objective, _(ii)_ the relationship between each indicator and its objective must be clear and direct, although (iii) multiple objectives can be addressed by multiple indicators (jointly interpreted); finally, in order to assure the utility of the indicators, (iv) appropriate data must be provided, and (v) the management of indicators' information should be part of the regulatory process.

Despite the difficulties mentioned, price indicators can constitute for the regulator a mechanism of control over the activities of the operators. This control may be established not only in terms of the comparison between companies of similar characteristics, but through monitoring over a period. In any event, the regulator must ensure that any variation in price corresponds to a proportionate variation in companies' costs or level of efficiency. The operational and efficiency indices are therefore instruments which help the tasks of the regulator. Improvements in companies' productivity and efficiency levels combined with increases in price levels are clear signs of abuse of market power on the part of railway operators.

Indicators of service quality were developed in Section 5, and they should serve, as price indices, to establish evaluations of different companies, as well as dynamic or time evaluations. These measurements should be analyzed together with price indices, because of the possibility of finding different feasible combinations of price and service quality. For example, a high number of trains per hour, i.e. a high traffic density, could only be financed by means of high prices.

The simultaneous implantation of systems of control for prices and service quality may limit the management of the companies and reduce their operativity. Placing the emphasis on the control of prices or of service quality depends fundamentally on whether it i prefers to offer the service at the lowest price possible, or to offer the service with certain standards of quality. All these indicators allow the regulator to monitor the activities of the operators as defined in Phase II of Box 4.3. Unjustified or a systematic breach of the standards of quality (insufficient number of trains per hour, problems of punctuality and reliability of the service, very high indices of load factor, etc) should be accompanied by an appropriate system of penalties, as described in Section _5._

# **6.3. - Best practices in the rail industry.**

Taking into account the comparison caveats made above, the final part of this section compares some of the most relevant performance indicators for the rail industry with those from the companies that obtain the best results, or at least with indices that one could consider desirable. This procedure, commonly used by many governments around the world as a yardstick mechanism, is exemplified in Box 6.3. The last two columns show the values of the best practice levels for a sample of European, Australian and American rail companies, and the values considered desirable according to a World Bank study by Gannon and Shalizi (1995) and the

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