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Does regulation induce cost efficiency in electricity distribution utilities? Use of stochastic cost frontier analysis for the Indian states

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  • Amit Nandan

    (29358Centre for Development Studies (CDS), India)

  • Hrushikesh Mallick

    (29358Centre for Development Studies (CDS), India)

Abstract

To overcome the macroeconomic crisis of the early 1990s, the Government of India persuaded the state governments to adopt market-oriented reforms for loss-making state public sector undertakings in general and power sector utilities in particular with an aim to limit the overall size of the public sector. This led the state governments to undertake unbundling of their vertically integrated State Electricity Boards (SEBs), establish independent regulatory bodies in the form of State Electricity Regulatory Commissions (SERCs) to regulate the power sector, and allow for an active participation of private sector. Given this backdrop, the present study attempts to examine the effect of establishment of SERCs on the cost-efficiency of electricity distribution in the Indian states. Thereby, it evaluates whether the establishment of SERCs has induced efficiency gains in the electricity distribution. Estimating a Cobb-Douglas stochastic cost frontier function, it finds that the establishment of independent regulators in various states has resulted in significant improvements in the cost-efficiency in the electricity distribution.

Suggested Citation

  • Amit Nandan & Hrushikesh Mallick, 2021. "Does regulation induce cost efficiency in electricity distribution utilities? Use of stochastic cost frontier analysis for the Indian states," Competition and Regulation in Network Industries, , vol. 22(2), pages 127-159, June.
    • Handle: RePEc:sae:crnind:v:22:y:2021:i:2:p:127-159
    DOI: 10.1177/17835917211029498
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    JEL classification:

    • K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • D20 - Microeconomics - - Production and Organizations - - - General
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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