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Regulation and Measuring Cost-Efficiency with Panel Data Models: Application to Electricity Distribution Utilities

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  • Mehdi Farsi
  • Massimo Filippini

    () (Center for Energy Policy and Economics, Federal Institute of Technology, University of Lugano, ETH Zentrum, WEC, 8092 Zurich, Switzerland; Department of Economics, University of Lugano, Via Ospedale 13, 6900 Lugano, Switzerland; CEPE, ETH Zentrum, CH-8092, Zurich, Switzerland. Tel: +41-1-632-0649; Fax: +41-1-632-1050)

Abstract

This paper examines the performance of panel data models in measuring cost-efficiency of electricity distribution utilities. Different cost frontier models are applied to a sample of 59 utilities operating in Switzerland from 1988 to 1996. The estimated coefficients and inefficiency scores are compared across different specifications. The results indicate that while the average inefficiency is not sensitive to the econometric specification, the efficiency ranking varies significantly across models. The reasonably low out-of-sample prediction errors suggest that panel data models can be used as a prediction instrument in order to narrow the information gap between the regulator and regulated companies.

Suggested Citation

  • 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.
    • Handle: RePEc:kap:revind:v:25:y:2004:i:1:p:1-19
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