Does the liberalization of the European railway sector increase systemic risk?

Abstract

Recent large-scale blackouts and other incidents have shown that failures in network industries can have serious economic and social consequences. A large body of literature covers critical infrastructures (and their protection), but most of it is confined to a relatively restricted number of sectors such as electricity and information and communications technology (ICT). In addition, much of the literature discusses systemic risk in complex networks from an engineering perspective with the goal of mitigating risk using quantitative techniques. The railway sector is a critical infrastructure that shares a number of characteristics with electricity (e.g. interconnection), but it has received little attention when it comes to systemic risk. This paper analyzes the extent to which the liberalization of the railway system increases the sector's systemic risk, a pressing question in the wake of the creation of a single European railway market. The paper also discusses the broader issue of the governance of systemic risk in the railway sector, especially since the mitigation of risk tends to be limited to risk management from a technical perspective while ignoring the institutional dimension. © IFIP International Federation for Information Processing 2009.