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Incentive Regulation and the Role of Convexity in Benchmarking Electricity Distribution: Economists versus Engineers

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  • Emili Grifell-Tatjé

    (Universitat Autònoma de Barcelona, Spain)

  • Kristiaan Kerstens

    ()
    (CNRS-LEM, IESEG School of Management)

Abstract

This note illustrates the potential impact of the specification of a convex production technology on establishing minimal costs compared to the use of a non-convex technology when benchmarking electricity distributors. This methodological reflection is mainly motivated by recent engineering literature providing evidence for non-convexities in electricity distribution. An empirical illustration using non-parametric specifications of technology illustrates this main point using a sample of Spanish electricity distribution firms earlier analysed in Grifell-Tatjé and Lovell (2003).

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Bibliographic Info

Paper provided by IESEG School of Management in its series Working Papers with number 2007-ECO-01.

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Length: 16 pages
Date of creation: Oct 2007
Date of revision:
Publication status: Published in Annals of Public and Cooperative Economics, June 2008, 79(2), pp. 227-248
Handle: RePEc:ies:wpaper:e200701

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Keywords: Convexity; incentive regulation; benchmarking; engineering;

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References

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  1. Tim Coelli & Antonio Estache & Sergio Perelman & Lourdes Trujillo, 2003. "A Primer on Efficiency Measurement for Utilities and Transport Regulators," World Bank Publications, The World Bank, number 15149, August.
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  8. Marsden, James R & Pingry, David E, 1986. "Engineering Production Functions and the Testing of Quantitative Economic Hypotheses," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 53(212), pages 533-34, November.
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  12. Wibe, Soren, 1986. "Observable and Non-observable Data: A Reply [Engineering Production Functions--A Survey]," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 53(212), pages 535-36, November.
  13. Subodh Kumar & R. Robert Russell, 2002. "Technological Change, Technological Catch-up, and Capital Deepening: Relative Contributions to Growth and Convergence," American Economic Review, American Economic Association, American Economic Association, vol. 92(3), pages 527-548, June.
  14. 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.
  15. Wibe, Soren A, 1984. "Engineering Production Functions: A Survey," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 51(204), pages 401-11, November.
  16. Jamasb, Tooraj & Nillesen, Paul & Pollitt, Michael, 2004. "Strategic behaviour under regulatory benchmarking," Energy Economics, Elsevier, Elsevier, vol. 26(5), pages 825-843, September.
  17. Walter Briec & Kristiaan Kerstens & Philippe Vanden Eeckaut, 2006. "Non-convex Technologies and Cost Functions: Definitions, Duality and Nonparametric Tests of Convexity (Journal of Economics 81(2):155–192)," Journal of Economics, Springer, Springer, vol. 87(3), pages 307-308, 04.
  18. Peter Bogetoft, 2000. "DEA and Activity Planning under Asymmetric Information," Journal of Productivity Analysis, Springer, Springer, vol. 13(1), pages 7-48, January.
  19. Jamasb, Tooraj & Nillesen, Paul & Pollitt, Michael, 2003. "Gaming the Regulator: A Survey," The Electricity Journal, Elsevier, Elsevier, vol. 16(10), pages 68-80, December.
  20. Makkonen, Simo & Lahdelma, Risto, 2006. "Non-convex power plant modelling in energy optimisation," European Journal of Operational Research, Elsevier, Elsevier, vol. 171(3), pages 1113-1126, June.
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