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Dynamic Efficiency Estimation: An Application to U.S. Electric Utilities

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  • Rungsuriyawiboon, Supawat
  • Stefanou, Spiro E.

Abstract

The static production efficiency model and the dynamic duality model of intertemporal decision making using a parametric approach have been continuously developed but in separate direction. In this study the static shadow cost approach and the dynamic duality model of intertemporal decision making are integrated to formulate theoretical and econometric models of dynamic efficiency with intertemporal cost minimizing firm behavior. The dynamic efficiency model is empirically implemented using a panel data set of 72 U.S. major investor-owned electric utilities using fossil-fuel fired steam electric power generation during the time period of 1986 to 1999. The major results of this study are that most electric utilities in this study underutilized fuel relative to the aggregated labor and maintenance input and they overutilized capital in production. Electric utilities with relatively high technical inefficiency of variable inputs demand in production in states adopting a deregulation plan improve the performance of the utilities. The estimates of the input price elasticities present the substitution possibilities among the inputs. Finally, the results suggest evidence of increasing returns to scale in the production of the electricity industry.

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Bibliographic Info

Article provided by American Statistical Association in its journal Journal of Business and Economic Statistics.

Volume (Year): 25 (2007)
Issue (Month): (April)
Pages: 226-238

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Handle: RePEc:bes:jnlbes:v:25:y:2007:p:226-238

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References

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  1. Crew, Michael A & Kleindorfer, Paul R, 2002. "Regulatory Economics: Twenty Years of Progress?," Journal of Regulatory Economics, Springer, vol. 21(1), pages 5-22, January.
  2. Jeffrey I. Bernstein & M. Ishaq Nadiri, 1989. "Research and Development and Intraindustry Spillovers: An Empirical Application of Dynamic Duality," NBER Working Papers 2002, National Bureau of Economic Research, Inc.
  3. Newey, Whitney K & West, Kenneth D, 1987. "A Simple, Positive Semi-definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix," Econometrica, Econometric Society, vol. 55(3), pages 703-08, May.
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  6. Granderson, Gerald & Linvill, Carl, 2002. "Regulation, efficiency, and Granger causality," International Journal of Industrial Organization, Elsevier, vol. 20(9), pages 1225-1245, November.
  7. repec:att:wimass:9220 is not listed on IDEAS
  8. L. Dean Hiebert, 2002. "The Determinants of the Cost Efficiency of Electric Generating Plants: A Stochastic Frontier Approach," Southern Economic Journal, Southern Economic Association, vol. 68(4), pages 935-946, April.
  9. Schmidt, Peter & Knox Lovell, C. A., 1979. "Estimating technical and allocative inefficiency relative to stochastic production and cost frontiers," Journal of Econometrics, Elsevier, vol. 9(3), pages 343-366, February.
  10. Atkinson, Scott E. & Primont, Daniel, 2002. "Stochastic estimation of firm technology, inefficiency, and productivity growth using shadow cost and distance functions," Journal of Econometrics, Elsevier, vol. 108(2), pages 203-225, June.
  11. Epstein, Larry G, 1981. "Duality Theory and Functional Forms for Dynamic Factor Demands," Review of Economic Studies, Wiley Blackwell, vol. 48(1), pages 81-95, January.
  12. Cornwell, Christopher & Schmidt, Peter & Sickles, Robin C., 1989. "Production Frontiers With Cross-Sectinal And Time-Series Variation In Efficiency Levels," Working Papers 89-18, C.V. Starr Center for Applied Economics, New York University.
  13. Christensen, Laurits R & Greene, William H, 1976. "Economies of Scale in U.S. Electric Power Generation," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages 655-76, August.
  14. Epstein, Larry G & Denny, Michael G S, 1983. "The Multivariate Flexible Accelerator Model: Its Empirical Restrictions and an Application to U.S. Manufacturing," Econometrica, Econometric Society, vol. 51(3), pages 647-74, May.
  15. Atkinson, Scott E & Halvorsen, Robert, 1980. "A Test of Relative and Absolute Price Efficiency in Regulated Utilities," The Review of Economics and Statistics, MIT Press, vol. 62(1), pages 81-88, February.
  16. Yir-Hueih Luh & Spiro E. Stefanou, 1996. "Estimating Dynamic Dual Models under Nonstatic Expectations," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(4), pages 991-1003.
  17. Newey, Whitney K & West, Kenneth D, 1994. "Automatic Lag Selection in Covariance Matrix Estimation," Review of Economic Studies, Wiley Blackwell, vol. 61(4), pages 631-53, October.
  18. Treadway, Arthur B., 1974. "The globally optimal flexible accelerator," Journal of Economic Theory, Elsevier, vol. 7(1), pages 17-39, January.
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Citations

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Cited by:
  1. Kapelko, Magdalena & Oude Lansink, Alfons G.J.M. & Stefanou, Spiro E., 2012. "Assessing dynamic efficiency of the Spanish construction sector pre- and post-financial crisis," 131st Seminar, September 18-19, 2012, Prague, Czech Republic 135790, European Association of Agricultural Economists.
  2. Supawat Rungsuriyawiboon & Spyro Stefanou, 2004. "The Dynamics of Efficiency and Productivity Growth in U. S. Electric Utilities," Working Papers 0711, University of Crete, Department of Economics, revised 00 Aug 2006.
  3. Supawat Rungsuriyawiboon, 2004. "An Analysis of Cost Structures in the Electricity Generation Industry," CEPA Working Papers Series WP052004, School of Economics, University of Queensland, Australia.
  4. Stefanou, Spiro E., 2009. "A Dynamic Characterization of Efficiency," Agricultural Economics Review, Greek Association of Agricultural Economists, vol. 10(1), January.
  5. Supawat Rungsuriyawiboon & Tim Coelli, 2004. "Regulatory Reform and Economic Performance in US Electricity Generation," CEPA Working Papers Series WP062004, School of Economics, University of Queensland, Australia.
  6. Huettel, Silke & Narayana, Rashmi & Odening, Martin, 2011. "Measuring dynamic efficiency under uncertainty," Structural Change in Agriculture/Strukturwandel im Agrarsektor (SiAg) Working Papers 129062, Humboldt University Berlin, Department of Agricultural Economics.
  7. Supawat Rungsuriyawiboon & Chris O'Donnell, 2004. "Curvature-Constrained Estimates of Technical Efficiency and Returns to Scale for U.S. Electric Utilities," CEPA Working Papers Series WP072004, School of Economics, University of Queensland, Australia.
  8. Wagner, Christina & Huttel, Silke & Odening, Martin, 2012. "Dynamic Efficiency Under Uncertainty: An Application To German Dairy Farms," 52nd Annual Conference, Stuttgart, Germany, September 26-28, 2012 133826, German Association of Agricultural Economists (GEWISOLA).
  9. Grigorios Emvalomatis, 2012. "Adjustment and unobserved heterogeneity in dynamic stochastic frontier models," Journal of Productivity Analysis, Springer, vol. 37(1), pages 7-16, February.
  10. Stratford Douglas & Thomas A. Garrett & Russell M. Rhine, 2009. "Disallowances and overcapitalization in the U.S. electric utility industry," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 23-32.
  11. Margarita Genius & Spyro Stefanou & Vangelis Tzouvelekas, 2009. "Productivity Growth and Efficiency under Leontief Technology: An Application to US Steam-Electric Power Generation Utilities," Working Papers 0913, University of Crete, Department of Economics.
  12. Kapelko, Magdalena & Oude Lansink, Alfons G.J.M. & Stefanou, Spiro E., 2012. "Dynamic Productivity Growth in the Spanish Meat Industry," 131st Seminar, September 18-19, 2012, Prague, Czech Republic 135789, European Association of Agricultural Economists.

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