IDEAS home Printed from https://ideas.repec.org/a/eee/eneeco/v32y2010i1p15-23.html
   My bibliography  Save this article

Cost efficiency and optimal scale of electricity distribution firms in Taiwan: An application of metafrontier analysis

Author

Listed:
  • Huang, Yi-Ju
  • Chen, Ku-Hsieh
  • Yang, Chih-Hai

Abstract

This paper analyzes the cost efficiency and optimal scale of Taiwan's electricity distribution industry. Due to the substantial difference in network density, firms may differ widely in production technology. We employ the stochastic metafrontier approach to estimate the cost efficiency of 24 distribution units during the period 1997-2002. Empirical results find that the average cost efficiency is overestimated using the traditional stochastic frontier model, especially for low density regions. The average cost efficiency of the high density group is significantly higher than that of the low density group as it benefits from network economies. This study also calculates both short-term and long-term optimal scales of electricity distribution firms, lending policy implications for the deregulation of the electricity distribution industry.

Suggested Citation

  • Huang, Yi-Ju & Chen, Ku-Hsieh & Yang, Chih-Hai, 2010. "Cost efficiency and optimal scale of electricity distribution firms in Taiwan: An application of metafrontier analysis," Energy Economics, Elsevier, vol. 32(1), pages 15-23, January.
  • Handle: RePEc:eee:eneeco:v:32:y:2010:i:1:p:15-23
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0140-9883(09)00043-7
    Download Restriction: Full text for ScienceDirect subscribers only

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

    References listed on IDEAS

    as
    1. 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.
    2. Schankerman, Mark & Nadiri, M. Ishaq, 1986. "A test of static equilibrium models and rates of return to quasi-fixed factors, with an application to the Bell system," Journal of Econometrics, Elsevier, vol. 33(1-2), pages 97-118.
    3. Chen, Tser-yieth, 2002. "An assessment of technical efficiency and cross-efficiency in Taiwan's electricity distribution sector," European Journal of Operational Research, Elsevier, vol. 137(2), pages 421-433, March.
    4. PER AGRELL & Peter Bogetoft & Jørgen Tind, 2005. "DEA and Dynamic Yardstick Competition in Scandinavian Electricity Distribution," Journal of Productivity Analysis, Springer, vol. 23(2), pages 173-201, May.
    5. Mehdi Farsi & Massimo Filippini, 2004. "Regulation and Measuring Cost-Efficiency with Panel Data Models: Application to Electricity Distribution Utilities," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 25(1), pages 1-19, August.
    6. Giannakis, Dimitrios & Jamasb, Tooraj & Pollitt, Michael, 2005. "Benchmarking and incentive regulation of quality of service: an application to the UK electricity distribution networks," Energy Policy, Elsevier, vol. 33(17), pages 2256-2271, November.
    7. George E. Battese & D. S. Prasada Rao, 2002. "Technology Gap, Efficiency, and a Stochastic Metafrontier Function," International Journal of Business and Economics, College of Business and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 1(2), pages 87-93, August.
    8. Bagdadioglu, Necmiddin & Waddams Price, Catherine M. & Weyman-Jones, Thomas G., 1996. "Efficiency and ownership in electricity distribution: A non-parametric model of the Turkish experience," Energy Economics, Elsevier, vol. 18(1-2), pages 1-23, April.
    9. Filippini, Massimo & Hrovatin, Nevenka & Zoric, Jelena, 2004. "Efficiency and regulation of the Slovenian electricity distribution companies," Energy Policy, Elsevier, vol. 32(3), pages 335-344, February.
    10. D.S. Prasada Rao & Christopher J. O'Donnell & George E. Battese, 2003. "Metafrontier Functions for the Study of Inter-regional Productivity Differences," CEPA Working Papers Series WP012003, School of Economics, University of Queensland, Australia.
    11. Toru Hattori, 2002. "Relative Performance of U.S. and Japanese Electricity Distribution: An Application of Stochastic Frontier Analysis," Journal of Productivity Analysis, Springer, vol. 18(3), pages 269-284, November.
    12. Burns, Philip & Weyman-Jones, Thomas G, 1996. "Cost Functions and Cost Efficiency in Electricity Distribution: A Stochastic Frontier Approach," Bulletin of Economic Research, Wiley Blackwell, vol. 48(1), pages 41-64, January.
    13. Pacudan, Romeo & de Guzman, Elaine, 2002. "Impact of energy efficiency policy to productive efficiency of electricity distribution industry in the Philippines," Energy Economics, Elsevier, vol. 24(1), pages 41-54, January.
    14. Nelson, Randy A., 1985. "Returns to scale from variable and total cost functions : Evidence from the electric power industry," Economics Letters, Elsevier, vol. 18(2-3), pages 271-276.
    15. Jamasb, T. & Pollitt, M., 2000. "Benchmarking and regulation: international electricity experience," Utilities Policy, Elsevier, vol. 9(3), pages 107-130, September.
    16. Erbetta, Fabrizio & Rappuoli, Luca, 2008. "Optimal scale in the Italian gas distribution industry using data envelopment analysis," Omega, Elsevier, vol. 36(2), pages 325-336, April.
    17. Christopher O’Donnell & D. Rao & George Battese, 2008. "Metafrontier frameworks for the study of firm-level efficiencies and technology ratios," Empirical Economics, Springer, vol. 34(2), pages 231-255, March.
    18. Jamasb, Tooraj & Pollitt, Michael, 2003. "International benchmarking and regulation: an application to European electricity distribution utilities," Energy Policy, Elsevier, vol. 31(15), pages 1609-1622, December.
    19. Aigner, Dennis & Lovell, C. A. Knox & Schmidt, Peter, 1977. "Formulation and estimation of stochastic frontier production function models," Journal of Econometrics, Elsevier, vol. 6(1), pages 21-37, July.
    20. Lau, Lawrence J. & Yotopoulos, Pan A., 1989. "The meta-production function approach to technological change in world agriculture," Journal of Development Economics, Elsevier, vol. 31(2), pages 241-269, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Wang, Qunwei & Chiu, Yung-Ho & Chiu, Ching-Ren, 2017. "Non-radial metafrontier approach to identify carbon emission performance and intensity," Renewable and Sustainable Energy Reviews, Elsevier, vol. 69(C), pages 664-672.
    2. repec:eee:enepol:v:108:y:2017:i:c:p:606-616 is not listed on IDEAS
    3. Chung, Yeimin & Heshmati, Almas, 2013. "Measurement of Environmentally Sensitive Productivity Growth in Korean Industries," IZA Discussion Papers 7235, Institute for the Study of Labor (IZA).
    4. Sombat Singkharat & Aree Wiboonpongse & Yaovarate Chaovanapoonphol, 2012. "Efficiency of improved peeled longan drying technology in Thailand: A metafrontier approach," The Empirical Econometrics and Quantitative Economics Letters, Faculty of Economics, Chiang Mai University, vol. 1(3), pages 19-32, September.
    5. Otieno, David Jakinda & Hubbard, Lionel J. & Ruto, Eric, 2011. "Technical efficiency and technology gaps in beef cattle production systems in Kenya: A stochastic metafrontier analysis," 85th Annual Conference, April 18-20, 2011, Warwick University, Coventry, UK 108947, Agricultural Economics Society.
    6. Jamasb, Tooraj & Orea, Luis & Pollit, Michael G., 2010. "Estimating Marginal Cost of Quality Improvements: The Case of the UK Electricity Distribution Companies," Efficiency Series Papers 2010/03, University of Oviedo, Department of Economics, Oviedo Efficiency Group (OEG).
    7. Barros, Carlos Pestana & Chen, Zhongfei & Managi, Shunsuke & Antunes, Olinda Sequeira, 2013. "Examining the cost efficiency of Chinese hydroelectric companies using a finite mixture model," Energy Economics, Elsevier, vol. 36(C), pages 511-517.
    8. Jamasb, Tooraj & Orea, Luis & Pollitt, Michael, 2012. "Estimating the marginal cost of quality improvements: The case of the UK electricity distribution companies," Energy Economics, Elsevier, vol. 34(5), pages 1498-1506.
    9. Chiu, Ching-Ren & Liou, Je-Liang & Wu, Pei-Ing & Fang, Chen-Ling, 2012. "Decomposition of the environmental inefficiency of the meta-frontier with undesirable output," Energy Economics, Elsevier, vol. 34(5), pages 1392-1399.
    10. repec:gam:jsusta:v:10:y:2018:i:3:p:862-:d:136885 is not listed on IDEAS
    11. 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.
    12. Chen, Zhongfei & Barros, Carlos Pestana & Borges, Maria Rosa, 2015. "A Bayesian stochastic frontier analysis of Chinese fossil-fuel electricity generation companies," Energy Economics, Elsevier, vol. 48(C), pages 136-144.
    13. Fu, Tsu-Tan & Juo, Jia-Ching & Chiang, Han-Chin & Yu, Ming-Miin & Huang, Mei-ying, 2016. "Risk-based decompositions of the meta profit efficiency of Taiwanese and Chinese banks," Omega, Elsevier, vol. 62(C), pages 34-46.
    14. Zhang, Ning & Choi, Yongrok, 2013. "Total-factor carbon emission performance of fossil fuel power plants in China: A metafrontier non-radial Malmquist index analysis," Energy Economics, Elsevier, vol. 40(C), pages 549-559.
    15. Chiu, Yung-ho & Luo, Zhengying & Chen, Yu-Chuan & Wang, Zebin & Tsai, Min-Pei, 2013. "A comparison of operating performance management between Taiwan banks and foreign banks based on the Meta-Hybrid DEA model," Economic Modelling, Elsevier, vol. 33(C), pages 433-439.
    16. Hwang, Won-Sik & Lee, Jeong-Dong, 2013. "Profitability and productivity changes in the Korean electricity industry," Energy Policy, Elsevier, vol. 52(C), pages 531-542.
    17. Wang, Zhaohua & Feng, Chao, 2015. "Sources of production inefficiency and productivity growth in China: A global data envelopment analysis," Energy Economics, Elsevier, vol. 49(C), pages 380-389.

    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:eee:eneeco:v:32:y:2010:i:1:p:15-23. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/eneco .

    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.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.