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Economies of Scale and Scope in Multi-Utilities

Author

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  • Mehdi Farsi
  • Aurelio Fetz
  • Massimo Filippini

Abstract

This paper explores the economies of scale and scope in the electricity, gas and water utilities. These issues have a crucial importance in the actual policy debates about unbundling the integrated utilities into separate entities, a policy which has often been supported by the ongoing reforms in the deregulation of network industries. This paper argues that the potential improvements in efficiency through unbundling should be assessed against the loss of scope economies. Several econometric specifications including a random-coefficient model are used to estimate a cost function for a sample of utilities distributing electricity, gas and/or water to the Swiss population. The estimates of scale and scope economies are compared across different models and the effect of heterogeneity among companies are explored. While indicating considerable scope and scale economies overall, the results suggest a significant variation in scope economies across companies due to unobserved heterogeneity.

Suggested Citation

  • Mehdi Farsi & Aurelio Fetz & Massimo Filippini, 2008. "Economies of Scale and Scope in Multi-Utilities," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 123-144.
  • Handle: RePEc:aen:journl:2008v29-04-a06
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Vassiliev, M. & Filatov, A., 2011. "The Models of Strategic Interaction between Network and Generating Companies at Electricity Transmission Market," Journal of the New Economic Association, New Economic Association, issue 10, pages 54-73.
    2. repec:eco:journ2:2017-03-11 is not listed on IDEAS
    3. Farsi, Mehdi & Filippini, Massimo, 2009. "An analysis of cost efficiency in Swiss multi-utilities," Energy Economics, Elsevier, vol. 31(2), pages 306-315, March.
    4. Michael Zschille, 2014. "Nonparametric measures of returns to scale: an application to German water supply," Empirical Economics, Springer, vol. 47(3), pages 1029-1053, November.
    5. Oh, Dong-hyun & Lee, Yong-Gil, 2016. "Productivity decomposition and economies of scale of Korean fossil-fuel power generation companies: 2001–2012," Energy, Elsevier, vol. 100(C), pages 1-9.
    6. Milan Vondráček & Tomáš Skuček, 2010. "Unbundling costs in the energy sector: competitive environment for the customers´ benefits or too costly experiment?," Ekonomika a Management, University of Economics, Prague, vol. 2010(3).
    7. Hickman, William & Muzhikyan, Aramazd & Farid, Amro M., 2017. "The synergistic role of renewable energy integration into the unit commitment of the energy water nexus," Renewable Energy, Elsevier, vol. 108(C), pages 220-229.
    8. Michael Zschille, 2015. "Consolidating the water industry: an analysis of the potential gains from horizontal integration in a conditional efficiency framework," Journal of Productivity Analysis, Springer, vol. 44(1), pages 97-114, August.
    9. Michael Zschille, 2014. "Marktstrukturen in der Trinkwasserversorgung," DIW Roundup: Politik im Fokus 43, DIW Berlin, German Institute for Economic Research.
    10. repec:eee:indorg:v:52:y:2017:i:c:p:450-478 is not listed on IDEAS
    11. Walter, Matthias & Cullmann, Astrid & von Hirschhausen, Christian & Wand, Robert & Zschille, Michael, 2009. "Quo vadis efficiency analysis of water distribution? A comparative literature review," Utilities Policy, Elsevier, vol. 17(3-4), pages 225-232, September.
    12. Massimo Filippini & Martin Koller, 2012. "Cost Efficiency Measurement in Postal Delivery Networks," Quaderni della facoltà di Scienze economiche dell'Università di Lugano 1206, USI Università della Svizzera italiana.
    13. Massimo Filippini & Martin Koller & Urs Trinkner, 2010. "Do opening hours and unobserved heterogeneity affect economies of scale and scope in postal outlets?," Quaderni della facoltà di Scienze economiche dell'Università di Lugano 1007, USI Università della Svizzera italiana.
    14. Michael Zschille, 2016. "Cost Structure and Economies of Scale in German Water Supply," Discussion Papers of DIW Berlin 1576, DIW Berlin, German Institute for Economic Research.
    15. Gugler, Klaus & Liebensteiner, Mario & Schmitt, Stephan, 2017. "Vertical disintegration in the European electricity sector: Empirical evidence on lost synergies," International Journal of Industrial Organization, Elsevier, pages 450-478.
    16. Ferro, Gustavo & Lentini, Emilio & Mercadier, Augusto & Romero, Carlos A., 2010. "Retornos a escala en agua y saneamiento: estimaciones para América Latina
      [Returns to scale in water and sanitation: estimates for Latin Amercia]
      ," MPRA Paper 20324, University Library of Munich, Germany, revised Jan 2010.
    17. Oh, Dong-hyun, 2015. "Productivity growth, technical change and economies of scale of Korean fossil-fuel generation companies, 2001–2012: A dual approach," Energy Economics, Elsevier, vol. 49(C), pages 113-121.

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    JEL classification:

    • F0 - International Economics - - General

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