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Scale Economies and Over-capitalization in Japanese Electric Utilities

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  • Nemoto, Jiro
  • Nakanishi, Yasuo
  • Madono, Seishi

Abstract

This paper presents empirical evidence on scale economies and overcapitalization in Japanese electric utilities. The authors employ the short-run equilibrium model in which the variable cost function treats capital stock as a quasi-fixed factor. They specify the variable cost function as a translog form and estimate it using panel data of nine Japanese electric utility firms during the period 1981 to 1985. The authors' results show that eight of the nine firms experience scale economies in the short run but diseconomies in the long run and that seven firms significantly over-capitalize as expected by the Averch-Johnson effect. Copyright 1993 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Suggested Citation

  • Nemoto, Jiro & Nakanishi, Yasuo & Madono, Seishi, 1993. "Scale Economies and Over-capitalization in Japanese Electric Utilities," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(2), pages 431-460, May.
    • Handle: RePEc:ier:iecrev:v:34:y:1993:i:2:p:431-60
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    Cited by:

    1. Akkemik, K. Ali & Oğuz, Fuat, 2011. "Regulation, efficiency and equilibrium: A general equilibrium analysis of liberalization in the Turkish electricity market," Energy, Elsevier, vol. 36(5), pages 3282-3292.
    2. Gérard Mondello & Evens Salies, 2007. "Fragmenter une activité à risque," Documents de Travail de l'OFCE 2007-19, Observatoire Francais des Conjonctures Economiques (OFCE).
    3. Jiro Nemoto & Mika Goto, 2003. "Measurement of Dynamic Efficiency in Production: An Application of Data Envelopment Analysis to Japanese Electric Utilities," Journal of Productivity Analysis, Springer, vol. 19(2), pages 191-210, April.
    4. Ali Akkemik, K., 2009. "Cost function estimates, scale economies and technological progress in the Turkish electricity generation sector," Energy Policy, Elsevier, vol. 37(1), pages 204-213, January.
    5. Gema Carrera-Gómez & José Baños-Pino & Pablo Coto-Millán & Vicente López de Sabando, 2005. "Rate of Return Regulation: The Case of Spanish Ports," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 11(2), pages 191-200, May.
    6. Wang, Nan & Mogi, Gento, 2017. "Industrial and residential electricity demand dynamics in Japan: How did price and income elasticities evolve from 1989 to 2014?," Energy Policy, Elsevier, vol. 106(C), pages 233-243.
    7. Walheer, Barnabé, 2018. "Scale efficiency for multi-output cost minimizing producers: The case of the US electricity plants," Energy Economics, Elsevier, vol. 70(C), pages 26-36.
    8. repec:kap:iaecre:v:11:y:2005:i:2:p:191-200 is not listed on IDEAS
    9. Ting-Kun Liu, 2011. "Local Monopoly, Network Effects And Technical Efficiency €“ Evidence From Taiwan’S Natural Gas Industry," Global Journal of Business Research, The Institute for Business and Finance Research, vol. 5(1), pages 55-63.
    10. Thomsen, Thomas, 2000. "Short cuts to dynamic factor demand modelling," Journal of Econometrics, Elsevier, vol. 97(1), pages 1-23, July.
    11. Ramos-Real, Francisco Javier, 2005. "Cost functions and the electric utility industry. A contribution to the debate on deregulation," Energy Policy, Elsevier, vol. 33(1), pages 69-87, January.
    12. Athawale, Rasika & Felder, Frank A., 2023. "Overbuilding transmission: A case study and policy analysis of the Indian power sector," Energy Policy, Elsevier, vol. 174(C).
    13. Ajayi, Victor & Weyman-Jones, Thomas & Glass, Anthony, 2017. "Cost efficiency and electricity market structure: A case study of OECD countries," Energy Economics, Elsevier, vol. 65(C), pages 283-291.
    14. Stratford Douglas & Thomas A. Garrett & Russell M. Rhine, 2009. "Disallowances and overcapitalization in the U.S. electric utility industry," Review, Federal Reserve Bank of St. Louis, vol. 91(Jan), pages 23-32.
    15. Takayama, H. & Yoshino, H., 1994. "Slow dynamics in 3D ± J Heisenberg spin glass; Monte Carlo analysis of auto-correlation functions of individual spins," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 204(1), pages 650-659.
    16. repec:hal:spmain:info:hdl:2441/1481 is not listed on IDEAS
    17. Hosoe, Nobuhiro, 2006. "The deregulation of Japan's electricity industry," Japan and the World Economy, Elsevier, vol. 18(2), pages 230-246, March.
    18. Rodríguez-Álvarez, Ana & Tovar, Beatriz, 2012. "Have Spanish port sector reforms during the last two decades been successful? A cost frontier approach," Transport Policy, Elsevier, vol. 24(C), pages 73-82.
    19. Stefan Seifert, 2016. "Semi-Parametric Measures of Scale Characteristics of German Natural Gas-Fired Electricity Generation," Discussion Papers of DIW Berlin 1571, DIW Berlin, German Institute for Economic Research.
    20. Rodríguez-Álvarez, Ana & Tovar de la Fe, Beatriz, 2009. "Reformas regulatorias y eficiencia en el sector portuario español," Efficiency Series Papers 2009/05, University of Oviedo, Department of Economics, Oviedo Efficiency Group (OEG).

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