Efficiency Effects of Quality of Service and Environmental Factors: Experience from Norwegian Electricity Distribution
AbstractSince the 1990s, efficiency and benchmarking analysis has increasingly been used in network utilities research and regulation. A recurrent concern is the effect of environmental factors that are beyond the influence of firms (observable heterogeneity) and factors that are not identifiable (unobserved heterogeneity) on measured cost and quality performance of firms. This paper analyses the effect of geographic and weather factors and unobserved heterogeneity on a set of 128 Norwegian electricity distribution utilities for the 2001-2004 period. We utilize data on almost 100 geographic and weather variables to identify real economic inefficiency while controlling for observable and unobserved heterogeneity. We use the factor analysis technique to reduce the number of environmental factors into few composite variables and to avoid the problem of multi-collinearity. We then estimate the established stochastic frontier models of Battese and Coelli (1992; 1995) and the recent true fixed effects models of Greene (2004; 2005) without and with environmental variables. In the former models some composite environmental variables have a significant effect on the performance of utilities. These effects vanish in the true fixed effects models. However, the latter models capture the entire unobserved heterogeneity and therefore show significantly higher average efficiency scores.
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Bibliographic InfoPaper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 1050.
Date of creation: 01 Oct 2010
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Web page: http://www.econ.cam.ac.uk/index.htm
Efficiency; Quality of service; Input distance function; Stochastic frontier analysis;
Other versions of this item:
- Growitsch, Christian & Jamasb, Tooraj & Wetzel, Heike, 2010. "Efficiency effects of quality of service and environmental factors: experience from Norwegian electricity distribution," EWI Working Papers, Energiewirtschaftliches Institut an der Universitaet zu Koeln 2010-3, Energiewirtschaftliches Institut an der Universitaet zu Koeln.
- L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
- L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-10-16 (All new papers)
- NEP-EFF-2010-10-16 (Efficiency & Productivity)
- NEP-ENE-2010-10-16 (Energy Economics)
- NEP-ENV-2010-10-16 (Environmental Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- FÃ¸rsund, Finn R. & Kittelsen, Sverre A. C., 1998. "Productivity development of Norwegian electricity distribution utilities," Resource and Energy Economics, Elsevier, Elsevier, vol. 20(3), pages 207-224, September.
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