Quality of Service, Efficiency, and Scale in Network Industries: An Analysis of European Electricity Distribution
AbstractQuality of service is of major economic significance in natural monopoly infrastructure industries and is increasingly addressed in regulatory schemes. However, this important aspect is generally not reflected in efficiency analysis of these industries. In this paper we present an efficiency analysis of electricity distribution networks using a sample of about 500 electricity distribution utilities from seven European countries. We apply the stochastic frontier analysis (SFA) method on multi-output translog input distance function models to estimate cost and scale efficiency with and without incorporating quality of service. We show that introducing the quality dimension into the analysis affects estimated efficiency significantly. In contrast to previous research, smaller utilities seem to indicate lower technical efficiency when incorporating quality. We also show that incorporating quality of service does not alter scale economy measures. Our results emphasise that quality of service should be an integrated part of efficiency analysis and incentive regulation regimes, as well as in the economic review of market concentration in regulated natural monopolies.
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Bibliographic InfoPaper provided by Halle Institute for Economic Research in its series IWH Discussion Papers with number 3.
Date of creation: Jul 2005
Date of revision:
efficiency; quality of service; scale economies; input distance function; stochastic frontier analysis;
Other versions of this item:
- 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, vol. 41(20), pages 2555-2570.
- Christian Growitsch & Jamasb, T. & Pollitt, M., 2005. "Quality of Service, Efficiency and Scale in Network Industries: An analysis of European electricity distribution," Cambridge Working Papers in Economics 0538, Faculty of Economics, University of Cambridge.
- 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-2005-10-04 (All new papers)
- NEP-BEC-2005-10-04 (Business Economics)
- NEP-EEC-2005-10-04 (European Economics)
- NEP-EFF-2005-10-04 (Efficiency & Productivity)
- NEP-ENE-2005-10-04 (Energy Economics)
- NEP-NET-2005-10-04 (Network Economics)
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