The Estimation of an Average Cost Frontier to Calculate Benchmark Tariffs for Electricity Distribution
AbstractIn this paper we have examined the scale and cost inefficiency of a sample of Swiss electricity distribution utilities. To do so, we have considered estimation of a stochastic frontier average cost model using the approach suggested by Schmidt and Sickles (1984) for panel data. A translog cost function was estimated using panel data for a sample of 30 municipal utilities over the period 1992-1996. The results indicate the existence of economies of output and customer density and economies of scale. Moreover, the findings on cost inefficiency show that a majority of the distribution utilities is not producing at the minimum level of the cost and that a possible application of the frontier methodology employed in this paper relates to the regulation and benchmarking of the delivery rates.
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Bibliographic InfoPaper provided by University of Zurich, Socioeconomic Institute in its series Working Papers with number 9803.
Length: 11 pages
Date of creation: Sep 1998
Date of revision:
electricity; cost frontier; benchmarking; Switzerland;
Find related papers by JEL classification:
- Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply
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