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Social cost-efficient service quality--Integrating customer valuation in incentive regulation: Evidence from the case of Norway

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  • Growitsch, Christian
  • Jamasb, Tooraj
  • Müller, Christine
  • Wissner, Matthias

Abstract

In order to overcome the perverse incentives of excessive maintenance reductions and insufficient network investments arising with incentive regulation of electricity distribution companies, regulators throughout Europe have started regulating service quality. In this paper, we explore the impact of incorporating customers' willingness-to-pay for service quality in benchmarking models on cost efficiency of distribution networks. Therefore, we examine the case of Norway, which features this approach to service quality regulation. We use the data envelopment analysis technique to analyse the effectiveness of such regulatory instruments. Moreover, we discuss the extent to which this indirect regulatory instrument motivates a socially desired service quality level. The results indicate that internalising external or social cost of service quality does not seem to have played an important role in improving cost efficiency in Norwegian distribution utilities.

Suggested Citation

  • Growitsch, Christian & Jamasb, Tooraj & Müller, Christine & Wissner, Matthias, 2010. "Social cost-efficient service quality--Integrating customer valuation in incentive regulation: Evidence from the case of Norway," Energy Policy, Elsevier, vol. 38(5), pages 2536-2544, May.
  • Handle: RePEc:eee:enepol:v:38:y:2010:i:5:p:2536-2544
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    References listed on IDEAS

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    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. Léopold Simar & Paul W. Wilson, 1998. "Sensitivity Analysis of Efficiency Scores: How to Bootstrap in Nonparametric Frontier Models," Management Science, INFORMS, vol. 44(1), pages 49-61, January.
    3. Afriat, Sidney N, 1972. "Efficiency Estimation of Production Function," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 13(3), pages 568-598, October.
    4. David Sappington, 2005. "Regulating Service Quality: A Survey," Journal of Regulatory Economics, Springer, vol. 27(2), pages 123-154, November.
    5. Charnes, A. & Cooper, W. W. & Rhodes, E., 1978. "Measuring the efficiency of decision making units," European Journal of Operational Research, Elsevier, vol. 2(6), pages 429-444, November.
    6. Pekka Korhonen & Mikko Syrjänen, 2003. "Evaluation of Cost Efficiency in Finnish Electricity Distribution," Annals of Operations Research, Springer, vol. 121(1), pages 105-122, July.
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    Citations

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    Cited by:

    1. Nepal, Rabindra & Jamasb, Tooraj, 2015. "Incentive regulation and utility benchmarking for electricity network security," Economic Analysis and Policy, Elsevier, vol. 48(C), pages 117-127.
    2. repec:spr:annopr:v:261:y:2018:i:1:d:10.1007_s10479-017-2628-7 is not listed on IDEAS
    3. Corton, Maria Luisa & Zimmermann, Aneliese & Phillips, Michelle Andrea, 2016. "The low cost of quality improvements in the electricity distribution sector of Brazil," Energy Policy, Elsevier, vol. 97(C), pages 485-493.
    4. repec:eee:juipol:v:45:y:2017:i:c:p:36-44 is not listed on IDEAS
    5. Cambini, Carlo & Croce, Annalisa & Fumagalli, Elena, 2014. "Output-based incentive regulation in electricity distribution: Evidence from Italy," Energy Economics, Elsevier, vol. 45(C), pages 205-216.
    6. Linares, Pedro & Rey, Luis, 2013. "The costs of electricity interruptions in Spain. Are we sending the right signals?," Energy Policy, Elsevier, vol. 61(C), pages 751-760.
    7. Castro, Rui & Faias, Sérgio & Esteves, Jorge, 2016. "The cost of electricity interruptions in Portugal: Valuing lost load by applying the production-function approach," Utilities Policy, Elsevier, vol. 40(C), pages 48-57.
    8. Saastamoinen, Antti & Kuosmanen, Timo, 2016. "Quality frontier of electricity distribution: Supply security, best practices, and underground cabling in Finland," Energy Economics, Elsevier, vol. 53(C), pages 281-292.

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