Efficiency assessment of Japanese National Railways before and after privatization and divestiture using data envelopment analysis

Japanese National Railways (JNR) was privatized in 1987 and divided into six passenger companies and one freight company. Before the structural reform, JNR was a national monopoly that owned railroad assets and provided transportation services throughout the country under government regulation. The goal of the structural reform was to eliminate management inefficiency and improve operational performance while attaining high quality of railroad transportation services at reasonable prices. To ascertain if this goal has been achieved, we examine the performance of JNR and Japan's six passenger railway companies before and after privatization and divestiture. Using data envelopment analysis on a data set from 1965 to 2017, we calculated four types of efficiency measures related to cost, operations, revenue-earning and profit-earning, by combining four phases of the companies' business activities as input and output: cost, operational resource, operational output, and total revenue. To the best of our knowledge, this study is the first holistic performance analysis of Japan's six railroad companies, using efficiency measures to assess the effects of the deregulation. The results reveal improvement in cost efficiency remains a vital issue for all six companies, and increasing trend of efficiency measures on operations is observed after the privatization. Mainland companies with an advantageous business environment do not necessarily have higher efficiency, holding more room for improvement. Further, we found that higher cost efficiency for some companies may be derived from a shrinking equilibrium in management based on a potential decline in demand, but such a passive operation could hinder managerial efforts to escape dependence on subsidy.