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Scale economies in electricity distribution: a semiparametric analysis

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  • A. Yatchew

    (Department of Economics, University of Toronto, 150 St George Street, Toronto, Canada M5S 3G7)

Abstract

We estimate the costs of distributing electricity using data on municipal electric utilities in Ontario, Canada for the period 1993-5. The data reveal substantial evidence of increasing returns to scale with minimum efficient scale being achieved by firms with about 20,000 customers. Larger firms exhibit constant or decreasing returns. Utilities which deliver additional services (such as water|sewage), have significantly lower costs, indicating the presence of economies of scope. Our basic specifications comprise semiparametric variants of the translog cost function where output enters non-parametrically and remaining variables (including their interactions with output) are parametric. We rely upon non-parametric differencing techniques and extend a previous differencing test of equality of non-parametric regression functions to a panel data setting. Copyright © 2000 John Wiley & Sons, Ltd.Journal: Journal of Applied Econometrics

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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.

Volume (Year): 15 (2000)
Issue (Month): 2 ()
Pages: 187-210

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Handle: RePEc:jae:japmet:v:15:y:2000:i:2:p:187-210

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References

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  1. Kjell G. Salvanes & Sigve Tjøtta, 1998. "A Test for Natural Monopoly with Application to Norwegian Electricity Distribution," Review of Industrial Organization, Springer, vol. 13(6), pages 669-685, December.
  2. Adonis Yatchew, 1998. "Nonparametric Regression Techniques in Economics," Journal of Economic Literature, American Economic Association, vol. 36(2), pages 669-721, June.
  3. Dennis Cox & Eunmee Koh, 1989. "A smoothing spline based test of model adequacy in polynomial regression," Annals of the Institute of Statistical Mathematics, Springer, vol. 41(2), pages 383-400, June.
  4. Baltagi, Badi H. & Hidalgo, Javier & Li, Qi, 1996. "A nonparametric test for poolability using panel data," Journal of Econometrics, Elsevier, vol. 75(2), pages 345-367, December.
  5. Hjalmarsson, Lennart & Veiderpass, Ann, 1992. " Productivity in Swedish Electricity Retail Distribution," Scandinavian Journal of Economics, Wiley Blackwell, vol. 94(0), pages S193-205, Supplemen.
  6. Yatchew, A., 1999. "An elementary nonparametric differencing test of equality of regression functions," Economics Letters, Elsevier, vol. 62(3), pages 271-278, March.
  7. Ahn, Hyungtaik & Powell, James L., 1993. "Semiparametric estimation of censored selection models with a nonparametric selection mechanism," Journal of Econometrics, Elsevier, vol. 58(1-2), pages 3-29, July.
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Citations

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Cited by:
  1. Wai Choi & Anindya Sen & Adam White, 2011. "Response of industrial customers to hourly pricing in Ontario’s deregulated electricity market," Journal of Regulatory Economics, Springer, vol. 40(3), pages 303-323, December.
  2. Arcos, Angel & de Toledo, Pablo Alvarez, 2009. "An analysis of the Spanish electrical utility industry: Economies of scale, technological progress and efficiency," Energy Economics, Elsevier, vol. 31(3), pages 473-481, May.
  3. Jamasb, T. & Nillesen, P. & Pollitt, M., 2003. "Strategic Behaviour under Regulation Benchmarking," Cambridge Working Papers in Economics 0312, Faculty of Economics, University of Cambridge.
  4. Paul Nillesen & Michael Pollitt, 2011. "Ownership Unbundling in Electricity Distribution: Empirical Evidence from New Zealand," Review of Industrial Organization, Springer, vol. 38(1), pages 61-93, January.
  5. Jamasb, T. & Neuhoff, K. & Newbery, D. & Pollitt, M., 2005. "Long-term Framework for Electricity Distribution Access Charges," Cambridge Working Papers in Economics 0551, Faculty of Economics, University of Cambridge.
  6. Luo, June, 2012. "Asymptotic efficiency of ridge estimator in linear and semiparametric linear models," Statistics & Probability Letters, Elsevier, vol. 82(1), pages 58-62.
  7. Luo, June & Gerard, Patrick, 2013. "Using thresholding difference-based estimators for variable selection in partial linear models," Statistics & Probability Letters, Elsevier, vol. 83(12), pages 2601-2606.
  8. Gaunt, C.T., 2008. "Electricity distribution industry restructuring in South Africa: A case study," Energy Policy, Elsevier, vol. 36(9), pages 3448-3459, September.
  9. Jamasb, Tooraj & Nillesen, Paul & Pollitt, Michael, 2004. "Strategic behaviour under regulatory benchmarking," Energy Economics, Elsevier, vol. 26(5), pages 825-843, September.
  10. Livanis, Grigorios T. & Salois, Matthew J. & Moss, Charles B., 2009. "A Nonparametric Kernel Representation of the Agricultural Production Function: Implications for Economic Measures of Technology," 83rd Annual Conference, March 30-April 1, 2009, Dublin, Ireland 51063, Agricultural Economics Society.
  11. Mehdi Farsi & Aurelio Fetz & Massimo Filippini, 2007. "Economies of Scale and Scope in the Swiss Multi-Utilities Sector," CEPE Working paper series 07-59, CEPE Center for Energy Policy and Economics, ETH Zurich.
  12. Manuel Frondel & Christoph M. Schmidt, 2006. "On the Restrictiveness of Separability: The Significance of Energy in German Manufacturing," RWI Discussion Papers 0038, Rheinisch-Westfälisches Institut für Wirtschaftsforschung.
  13. Goto, Mika & Sueyoshi, Toshiyuki, 2009. "Productivity growth and deregulation of Japanese electricity distribution," Energy Policy, Elsevier, vol. 37(8), pages 3130-3138, August.
  14. John Kwoka, 2005. "Electric power distribution: economies of scale, mergers, and restructuring," Applied Economics, Taylor & Francis Journals, vol. 37(20), pages 2373-2386.
  15. Shen, Leilei, 2013. "Financial dependence and growth: Diminishing returns to improvement in financial development," Economics Letters, Elsevier, vol. 120(2), pages 215-219.
  16. Fetz, Aurelio & Filippini, Massimo, 2010. "Economies of vertical integration in the Swiss electricity sector," Energy Economics, Elsevier, vol. 32(6), pages 1325-1330, November.
  17. John DiNardo & Justin L. Tobias, 2001. "Nonparametric Density and Regression Estimation," Journal of Economic Perspectives, American Economic Association, vol. 15(4), pages 11-28, Fall.
  18. Chang, Dong-Shang & Chen, Yi-Tui & Chen, Wen-Den, 2009. "The exogenous factors affecting the cost efficiency of power generation," Energy Policy, Elsevier, vol. 37(12), pages 5540-5545, December.
  19. Anenberg, Elliot, 2011. "Loss aversion, equity constraints and seller behavior in the real estate market," Regional Science and Urban Economics, Elsevier, vol. 41(1), pages 67-76, January.

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