Will Czech Trains Ever Reach Their Destinations Efficiently?
Independent Review, Vol. 14, No. 2, pp. 271-287, 2009
17 Pages Posted: 31 Oct 2010 Last revised: 5 May 2011
Date Written: September 17, 2008
Soft budget constraint (SBC) syndrome theory aptly explains the inefficient operations of the Czech railway industry with reference to České Dráhy (CD). The theory states that the existing organizational structures need to be destroyed to bring about creative competition in the Czech railways and that owners' responsibility for their property get affected if they do not have to bear losses. CD's decision makers tried to persuade control authorities to derive the maximum amount of subsidies and state-guaranteed loans, which indicate that the company suffers from the SBC syndrome. CD has founded many daughter companies in the past eight years, which are under no constraint to perform as they treat CD as a big company. Officials in Správa Železniční (SZDC) and CD feel that the state will never let them fail and have incurred huge loan debts.
Keywords: Czech railways, network industry, soft budget constraint
JEL Classification: D42, G14, H21, L92
Suggested Citation: Suggested Citation