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Benchmarking and incentive regulation of quality of service: an application to the UK electricity distribution utilities

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  • Giannakis, D.
  • T. Jamasb
  • Pollitt, M.G.

Abstract

Quality of service has emerged as an important issue in post-reform regulation of electricity distribution networks. Regulators have employed partial incentive schemes to promote cost saving, investment efficiency, and service quality. This paper presents a quality-incorporated benchmarking study of the electricity distribution utilities in the UK between 1991/92 and 1998/99. We calculate technical efficiency of the utilities using Data Envelopment Analysis technique and productivity change over time using quality-incorporated Malmquist indices. We find that cost efficient firms do not necessarily exhibit high service quality and that efficiency scores of cost-only models do not show high correlation with those of quality-based models. The results also show that improvements in service quality have made a significant contribution to the sector’s total productivity change. In addition, we show that integrating quality of service in regulatory benchmarking is preferable to cost-only approaches.

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Bibliographic Info

Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0408.

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Length: 38
Date of creation: Jan 2004
Date of revision:
Handle: RePEc:cam:camdae:0408

Note: CMI35, IO
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Web page: http://www.econ.cam.ac.uk/index.htm

Related research

Keywords: quality of service; benchmarking; incentive regulation; data envelopment analysis; electricity;

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References

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  1. Fare, R. & Grosskopf, S. & Roos, P., 1995. "Productivity and quality changes in Swedish pharmacies," International Journal of Production Economics, Elsevier, Elsevier, vol. 39(1-2), pages 137-144, April.
  2. Jamasb, T. & Pollitt, M., 2001. "International Benchmarking and Yardstick Regulation: An Application to European Electricity Utilities," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 0115, Faculty of Economics, University of Cambridge.
  3. Thanassoulis, Emmanuel, 2000. "DEA and its use in the regulation of water companies," European Journal of Operational Research, Elsevier, Elsevier, vol. 127(1), pages 1-13, November.
  4. Jamasb, Tooraj & Pollitt, Michael, 2003. "International benchmarking and regulation: an application to European electricity distribution utilities," Energy Policy, Elsevier, Elsevier, vol. 31(15), pages 1609-1622, December.
  5. Clemenz, Gerhard, 1991. "Optimal Price-Cap Regulation," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 39(4), pages 391-408, June.
  6. Yaisawarng, Suthathip & Klein, J Douglass, 1994. "The Effects of Sulfur Dioxide Controls on Productivity Change in the U.S. Electric Power Industry," The Review of Economics and Statistics, MIT Press, vol. 76(3), pages 447-60, August.
  7. Burns, Philip & Weyman-Jones, Thomas G, 1996. "Cost Functions and Cost Efficiency in Electricity Distribution: A Stochastic Frontier Approach," Bulletin of Economic Research, Wiley Blackwell, vol. 48(1), pages 41-64, January.
  8. M.E. Beesley & S.C. Littlechild, 1989. "The Regulation of Privatized Monopolies in the United Kingdom," RAND Journal of Economics, The RAND Corporation, vol. 20(3), pages 454-472, Autumn.
  9. Charnes, A. & Cooper, W. W. & Rhodes, E., 1978. "Measuring the efficiency of decision making units," European Journal of Operational Research, Elsevier, Elsevier, vol. 2(6), pages 429-444, November.
  10. Jamasb, T. & Pollitt, M., 2000. "Benchmarking and regulation: international electricity experience," Utilities Policy, Elsevier, Elsevier, vol. 9(3), pages 107-130, September.
  11. Kennedy, J. & Smith, A.S.J., 2003. "Assessing the efficient cost of sustaining Britain’s rail network: perspectives based on Zonal comparisons," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 0317, Faculty of Economics, University of Cambridge.
  12. R. D. Banker & A. Charnes & W. W. Cooper, 1984. "Some Models for Estimating Technical and Scale Inefficiencies in Data Envelopment Analysis," Management Science, INFORMS, INFORMS, vol. 30(9), pages 1078-1092, September.
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Citations

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Cited by:
  1. Simon Eckermann & Tim Coelli, 2008. "Including quality attributes in a model of health care efficiency: A net benefit approach," CEPA Working Papers Series WP032008, School of Economics, University of Queensland, Australia.
  2. Galdeano-Gomez, Emilio & Cespedes-Lorente, Jose & Rodriguez, Manuel Rodriguez, 2005. "Productivity and Quality-Environmental Changes in Marketing Co-operatives: An Analysis on the Horticultural Sector," 2005 International Congress, August 23-27, 2005, Copenhagen, Denmark, European Association of Agricultural Economists 24698, European Association of Agricultural Economists.
  3. Joskow, P.L., 2006. "Incentive Regulation in Theory and Practice: Electricity Distribution and Transmission Networks," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 0607, Faculty of Economics, University of Cambridge.
  4. Christian Growitsch & Tooraj Jamasb & Michael Pollitt, 2009. "Quality of service, efficiency and scale in network industries: an analysis of European electricity distribution," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 41(20), pages 2555-2570.
  5. Jamasb, Tooraj & Pollitt, Michael, 2007. "Incentive regulation of electricity distribution networks: Lessons of experience from Britain," Energy Policy, Elsevier, Elsevier, vol. 35(12), pages 6163-6187, December.
  6. Astrid Cullmann & Christian Hirschhausen, 2008. "Efficiency analysis of East European electricity distribution in transition: legacy of the past?," Journal of Productivity Analysis, Springer, Springer, vol. 29(2), pages 155-167, April.
  7. Jamasb, T. & Pollitt, M., 2007. "Reference Models and Incentive Regulation of Electricity Distribution Networks: An Evaluation of Sweden’s Network Performance Assessment Model (NPAM)," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 0747, Faculty of Economics, University of Cambridge.
  8. Christian von Hirschhausen & Astrid Cullmann & Andreas Kappeler, 2006. "Efficiency analysis of German electricity distribution utilities - non-parametric and parametric tests," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 38(21), pages 2553-2566.
  9. Mehdi Farsi & Aurelio Fetz & Massimo Filippini, 2007. "Benchmarking and Regulation in the Electricity Distribution Sector," CEPE Working paper series, CEPE Center for Energy Policy and Economics, ETH Zurich 07-54, CEPE Center for Energy Policy and Economics, ETH Zurich.
  10. Andaluz-Alcazar, Alvaro, 2012. "Choix d'investissement sous incertitude des gestionnaires des réseaux de distribution (GRD) en Europe à l'horizon 2030," Economics Thesis from University Paris Dauphine, Paris Dauphine University, Paris Dauphine University, number 123456789/10862 edited by Keppler, Jan Horst.

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