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The dynamics of efficiency and productivity growth in U.S. electric utilities

Author

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  • Supawat Rungsuriyawiboon

    ()

  • Spiro Stefanou

    ()

Abstract

This study recognizes explicitly the efficiency gain or loss as a source in explaining the growth. A theoretically consistent method to estimate the decomposition of dynamic total factor productivity growth (TFP) in the presence of inefficiency is developed which is constructed from an extension of the dynamic TFP growth, adjusted for deviations from the long-run equilibrium within an adjustment cost framework. The empirical case study is to U.S. electric utilities, which provides a measure to evaluate how different electric utilities participate in the deregulation of electricity generation. TFP grew by 2.26 percent per annum with growth attributed to the combined scale effects of 0.34 percent, the combined efficiency effects of 0.69 percent, and the technical change effect of 1.22 percent. The dynamic TFP grew by 1.66 percent per annum for electric utilities located within states with the deregulation plan and 3.30 percent per annum for those located outside. Electric utilities located within states with the deregulation plan increased the outputs by improving technical and input allocative efficiencies more than those located outside of states with deregulation plans.
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Suggested Citation

  • Supawat Rungsuriyawiboon & Spiro Stefanou, 2008. "The dynamics of efficiency and productivity growth in U.S. electric utilities," Journal of Productivity Analysis, Springer, vol. 30(3), pages 177-190, December.
  • Handle: RePEc:kap:jproda:v:30:y:2008:i:3:p:177-190
    DOI: 10.1007/s11123-008-0107-5
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    References listed on IDEAS

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    1. Rungsuriyawiboon, Supawat & Stefanou, Spiro E., 2007. "Dynamic Efficiency Estimation: An Application to U.S. Electric Utilities," Journal of Business & Economic Statistics, American Statistical Association, vol. 25, pages 226-238, April.
    2. McLaren, Keith R & Cooper, Russel J, 1980. "Intertemporal Duality: Application to the Theory of the Firm," Econometrica, Econometric Society, vol. 48(7), pages 1755-1762, November.
    3. Markiewicz, K. & Rose, N.L. & Wolfram, C., 2004. "Does Competition Reduce Costs? Assessing the Impact of Regulatory Restructuring on U.S. Electric Generation Efficiency," Cambridge Working Papers in Economics 0472, Faculty of Economics, University of Cambridge.
    4. Kira R. Fabrizio & Nancy L. Rose & Catherine D. Wolfram, 2007. "Do Markets Reduce Costs? Assessing the Impact of Regulatory Restructuring on US Electric Generation Efficiency," American Economic Review, American Economic Association, vol. 97(4), pages 1250-1277, September.
    5. Jeffrey I. Bernstein & Theofanis P. Mamuneas & Panos Pashardes, 2004. "Technical Efficiency and U.S. Manufacturing Productivity Growth," The Review of Economics and Statistics, MIT Press, vol. 86(1), pages 402-412, February.
    6. Timothy J. Considine, 2000. "Cost Structures for Fossil Fuel-Fired Electric Power Generation," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 83-104.
    7. Paul W. Bauer, 1988. "Decomposing TFP growth in the presence of cost inefficiency, nonconstant returns to scale, and technological progress," Working Paper 8813, Federal Reserve Bank of Cleveland.
    8. Larry G. Epstein, 1981. "Duality Theory and Functional Forms for Dynamic Factor Demands," Review of Economic Studies, Oxford University Press, vol. 48(1), pages 81-95.
    9. Cornwell, Christopher & Schmidt, Peter & Sickles, Robin C., 1990. "Production frontiers with cross-sectional and time-series variation in efficiency levels," Journal of Econometrics, Elsevier, vol. 46(1-2), pages 185-200.
    10. Epstein, Larry G & Denny, Michael G S, 1983. "The Multivariate Flexible Accelerator Model: Its Empirical Restrictions and an Application to U.S. Manufacturing," Econometrica, Econometric Society, vol. 51(3), pages 647-674, May.
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    Cited by:

    1. Chen, Yi-Yi & Schmidt, Peter & Wang, Hung-Jen, 2014. "Consistent estimation of the fixed effects stochastic frontier model," Journal of Econometrics, Elsevier, vol. 181(2), pages 65-76.
    2. Stefan Seifert, 2015. "Measuring Productivity When Technologies Are Heterogeneous: A Semi-Parametric Approach for Electricity Generation," Discussion Papers of DIW Berlin 1526, DIW Berlin, German Institute for Economic Research.
    3. Caputo, Michael R. & Paris, Quirino, 2013. "An intertemporal microeconomic theory of disembodied and price-induced technical progress," Economic Modelling, Elsevier, vol. 33(C), pages 631-640.
    4. 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.
    5. repec:spr:empeco:v:52:y:2017:i:4:d:10.1007_s00181-016-1104-6 is not listed on IDEAS
    6. Ang, Frederic & Kerstens, Pieter Jan, 2017. "The Dynamic Luenberger-Hicks-Moorsteen Productivity Indicator With An Application To Dairy Farms In South West England," 2017 International Congress, August 28-September 1, 2017, Parma, Italy 260831, European Association of Agricultural Economists.

    More about this item

    Keywords

    Productivity growth; Adjustment costs; Dynamic duality; Inefficiency; Decomposition; Deregulation; Electricity; D24; D92; L94;

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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