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Measuring Potential Efficiency Gains From Deregulation Of Electricity Generation: A Bayesian Approach

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Author Info
Andrew N. Kleit
Dek Terrell
Abstract

This paper examines the efficiency of electric power generation plants in the United States. A 1996 data set from the Utility Data Institute and county-level wage data from the Bureau of Labor statistics provide the information needed to construct measures of cost, output, and input prices for 78 steam plants using natural gas as the primary fuel. This paper uses a Bayesian stochastic frontier model that imposes concavity and monotonicity restrictions implied by microeconomic theory to measure efficiency, price elasticities, and returns to scale of these plants. Results indicate that plants on average could reduce costs by up to 13% by eliminating production inefficiency. Results also indicate that most plants operate at increasing returns to scale, suggesting further cost savings could be achieved through increasing output. © 2001 by the President and Fellows of Harvard College and the Massachusetts Institute of Technolog

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Article provided by MIT Press in its journal The Review of Economics and Statistics.

Volume (Year): 83 (2001)
Issue (Month): 3 (August)
Pages: 523-530
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Handle: RePEc:tpr:restat:v:83:y:2001:i:3:p:523-530

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  1. Carlos Pestana Barros, 2008. "Identification of Segments of Thermo Energy Plants with a Latent Class Model," Working Papers 2008/11, Department of Economics at the School of Economics and Management (ISEG), Technical University of Lisbon.. [Downloadable!]
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  2. Zhang, Yingang & Parker, David & Kirkpatrick, Colin, 2004. "Competition, Regulation and Privatisation of Electricity Generation in Developing Countries: Does the Sequencing of the Reforms Matter?," Centre on Regulation and Competition (CRC) Working papers 30599, University of Manchester, Institute for Development Policy and Management (IDPM). [Downloadable!]
    Other versions:
  3. Fraser, Iain & Davis, Junior & Balcombe, Kelvin & Bezemer, Dirk, 2005. "Is Rural Income Diversity Pro-Growth? Is It Pro-Poor? Evidence from Georgia," Proceedings of the German Development Economics Conference, Kiel 2005 4, Verein für Socialpolitik, Research Committee Development Economics. [Downloadable!]
  4. Erin T. Mansur & Sheila M. Olmstead, 2007. "The Value of Scarce Water: Measuring the Inefficiency of Municipal Regulations," NBER Working Papers 13513, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Zhang, Yin-Fang & Kirkpatrick, Colin & Parker, David, 2002. "Electricity Sector Reform in Developing Countries: An Econometric Assessment of the Effects of Privatisation, Competition and Regulation," Centre on Regulation and Competition (CRC) Working papers 30593, University of Manchester, Institute for Development Policy and Management (IDPM). [Downloadable!]
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  6. Mark Frank, 2003. "An Empirical Analysis of Electricity Regulation on Technical Change in Texas," Review of Industrial Organization, Springer, vol. 22(4), pages 313-331, June. [Downloadable!] (restricted)
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