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Cost Functions and Cost Efficiency in Electricity Distribution: A Stochastic Frontier Approach

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Author Info
Burns, Philip
Weyman-Jones, Thomas G
Abstract

The paper develops a cost frontier model of electricity distribution and estimates it on data for the 12 regional electricity companies of England and Wales. It is found that some significant cost drivers in cross-section estimation are insignificant when the model is estimated on panel data, highlighting the well-known drawbacks of cross-section estimation. Panel data estimation suggests that the main determinants of distribution operating costs are the number of customers in the area and simultaneous maximum demand. These results and the efficiency rankings of the companies are not sensitive to changes in error distribution assumptions and sample size. There is also significant evidence of economies of scale. There is a small but significant effect on cost efficiency from privatization, but this is as likely to be due to the changes in accounting policies as the time of privatization as any real effect. Copyright 1996 by Blackwell Publishing Ltd and the Board of Trustees of the Bulletin of Economic Research

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Publisher Info
Article provided by Blackwell Publishing in its journal Bulletin of Economic Research.

Volume (Year): 48 (1996)
Issue (Month): 1 (January)
Pages: 41-64
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Handle: RePEc:bla:buecrs:v:48:y:1996:i:1:p:41-64

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  1. Burns, Phil & Estache, Antonio, 1998. "Information, accounting, and the regulation of concessioned infrastructure monopolies," Policy Research Working Paper Series 2034, The World Bank. [Downloadable!]
  2. Thomas Weyman-Jones, 2001. "Yardstick and incentive issues in UK electricity distribution price controls," Fiscal Studies, Institute for Fiscal Studies, vol. 22(2), pages 233-247, June. [Downloadable!]
  3. Ligia Melo B. & Nestor Espinosa, . "Ineficiencia en la Distribución de Energía Eléctrica: Una Aplicación de las Funciones de Distancia Estocástica," Borradores de Economia 321, Banco de la Republica de Colombia. [Downloadable!]
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  4. Loza, Andrés & Margaretic, Paula & Romero, Carlos, 2003. "Consistencia de medidas de eficiencia basadas en funciones de distancia paramétricas y no paramétricas: una aplicación al sector de distribuidoras de electricidad en la Argentina
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  5. Jamasb, T. & Söderberg, M., 2009. "Yardstick and Ex-post Regulation by Norm Model: Empirical Equivalence, Pricing Effect, and Performance in Sweeden," Cambridge Working Papers in Economics 0908, Faculty of Economics, University of Cambridge. [Downloadable!]
  6. Jamasb, T. & Pollitt, M., 2001. "Benchmarking and Regulation of Electricity Transmission and Distribution Utilities: Lessons from International Experience," Cambridge Working Papers in Economics 0101, Faculty of Economics, University of Cambridge. [Downloadable!]
  7. Giannakis, D. & T. Jamasb & Pollitt, M.G., 2004. "Benchmarking and incentive regulation of quality of service: an application to the UK electricity distribution utilities," Cambridge Working Papers in Economics 0408, Faculty of Economics, University of Cambridge. [Downloadable!]
  8. Toru Hattori & Jamasb, T. & Pollitt, M.G., 2002. "Relative Performance of UK and Japanese Electricity Distribution Systems 1985-1998: Lessons for Incentive Regulation," Cambridge Working Papers in Economics 0212, Faculty of Economics, University of Cambridge. [Downloadable!]
  9. Mota, R.L., 2004. "‘Comparing Brazil and USA electricity performance; what was the impact of privatisation?’," Cambridge Working Papers in Economics 0423, Faculty of Economics, University of Cambridge. [Downloadable!]
  10. Christian von Hirschhausen & Andreas Kappeler, 2004. "Productivity Analysis of German Electricity Distribution Utilities," Discussion Papers of DIW Berlin 418, DIW Berlin, German Institute for Economic Research. [Downloadable!]
  11. Oriana Caldera & Giuseppe Folloni, 2001. "Size, density and costs of network services - the case of the distribution of electricity in Italy," ERSA conference papers ersa01p211, European Regional Science Association. [Downloadable!]
  12. Massimo Filippini & Joerg Wild, 1998. "The Estimation of an Average Cost Frontier to Calculate Benchmark Tariffs for Electricity Distribution," Working Papers 9803, University of Zurich, Socioeconomic Institute. [Downloadable!]
  13. Jamasb, T. & Pollitt, M., 2007. "Incentive Regulation of Electricity Distribution Networks: Lessons of Experience from Britain," Cambridge Working Papers in Economics 0709, Faculty of Economics, University of Cambridge. [Downloadable!]
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  14. 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. [Downloadable!]
  15. Estache, Antonio & Rossi, Martin A. & Ruzzier, Christian A., 2002. "The case for international coordination of electricity regulation : evidence from the measurement of efficiency in South America," Policy Research Working Paper Series 2907, The World Bank. [Downloadable!]
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