IDEAS home Printed from https://ideas.repec.org/a/bpj/rneart/v18y2019i1p35-62n2.html
   My bibliography  Save this article

Aligning Quality Incentives and Tariff Adjustments: The Case of the Brazilian Electricity Distribution Sector

Author

Listed:
  • Corton Maria Luisa

    (University of South Florida, Kate Tiedemann College of Business, 140 Seventh Av. South. LPH433, Saint Petersburg, FL, USA)

  • Phillips Michelle Andrea

    (University of Florida, Department of Economics, Gainesville, FL, USA)

  • Zimmermann Aneliese

    (University of St. Gallen, St. Gallen, Switzerland)

Abstract

This study investigates the role of aligning tariff adjustments and quality incentives in a Price cap regulatory regime. According to theory costs and quality are positively related. If additional resources are needed to improve service quality, a high cost high quality utility could be at a disadvantage when tariffs are adjusted by an X-factor that does not include quality. The regulator of the electricity distribution sector of Brazil has set up a public ranking of utilities according to quality compliance at the same time that a quality component is added to the X-factor, in 2013. We develop a stochastic cost frontier integrating all components of the X-factor to rank the utilities based on this integrated efficiency. Comparing this rank with the regulator’s public rank we argue that the resulting differences highlight the importance of using the same factors to rank and adjust tariffs in the sector. Otherwise, incentives would be misplaced with respect to factors used in cost adjustments. In addition, our findings reveal that the utilities’ cost behavior with respect to quality depends on the volume of energy delivered. We believe these results could be considered by the regulator when setting incentives and considering factors to adjust tariffs.

Suggested Citation

  • Corton Maria Luisa & Phillips Michelle Andrea & Zimmermann Aneliese, 2019. "Aligning Quality Incentives and Tariff Adjustments: The Case of the Brazilian Electricity Distribution Sector," Review of Network Economics, De Gruyter, vol. 18(1), pages 35-62, March.
    • Handle: RePEc:bpj:rneart:v:18:y:2019:i:1:p:35-62:n:2
    DOI: 10.1515/rne-2019-0044
    as

    Download full text from publisher

    File URL: https://www.degruyter.com/view/j/rne.2019.18.issue-1/rne-2019-0044/rne-2019-0044.xml?format=INT
    Download Restriction: For access to full text, subscription to the journal or payment for the individual article is required.
    File URL: https://libkey.io/10.1515/rne-2019-0044?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    More about this item

    Keywords

    benchmark; C33; efficiency ranking; L51; L98; panel data; SFA;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L98 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Government Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bpj:rneart:v:18:y:2019:i:1:p:35-62:n:2. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Peter Golla (email available below). General contact details of provider: https://www.degruyter.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.