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A Comparison of Costs in Privately Owned and Publicly Owned Electric Utilities: The Role of Scale

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  • Dong-Soo Koh
  • Sanford V. Berg
  • Lawrence W. Kenny

Abstract

The continued coexistence of small, publicly owned electricity utilities and larger privately owned utilities suggests that each ownership form has advantages inherent in scale and/or the acquisition of inputs. This pattern may be due to voters being better monitors in small jurisdictions, which yields more effective municipal cost control. This empirical study analyzes, using a translog cost function, the relative cost-efficiency of a relatively large sample of 121 privately owned and 61 publicly owned firms generating electricity via fossil fuels. Publicly owned firms are indeed more efficient at low output levels. Ownership choices are consistent with cost minimization.

Suggested Citation

  • Dong-Soo Koh & Sanford V. Berg & Lawrence W. Kenny, 1996. "A Comparison of Costs in Privately Owned and Publicly Owned Electric Utilities: The Role of Scale," Land Economics, University of Wisconsin Press, vol. 72(1), pages 56-65.
    • Handle: RePEc:uwp:landec:v:72:y:1996:i:1:p:56-65
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    Cited by:

    1. John Kwoka, 2006. "The Role of Competition in Natural Monopoly: Costs, Public Ownership, and Regulation," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 29(1), pages 127-147, September.
    2. See, Kok Fong & Coelli, Tim, 2014. "Total factor productivity analysis of a single vertically integrated electricity utility in Malaysia using a Törnqvist index method," Utilities Policy, Elsevier, vol. 28(C), pages 62-72.
    3. See, Kok Fong & Coelli, Tim, 2012. "An analysis of factors that influence the technical efficiency of Malaysian thermal power plants," Energy Economics, Elsevier, vol. 34(3), pages 677-685.
    4. Banker, Rajiv D. & Chang, Hsihui & Cunningham, Reba, 2003. "The public accounting industry production function," Journal of Accounting and Economics, Elsevier, vol. 35(2), pages 255-281, June.
    5. Jr. Ozuna & Irma Adriana Gomez, 1998. "Regulation, Organization and Incentives: The Political Economy of Potable Water Services in Mexico," Research Department Publications 3025, Inter-American Development Bank, Research Department.
    6. Heesun Jang, 2021. "Firm structure, scale economies, and productivity in the U.S. electric power industry: A cost function analysis," Energy & Environment, , vol. 32(5), pages 834-854, August.
    7. John E. Kwoka, 2005. "The comparative advantage of public ownership: evidence from U.S. electric utilities," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 38(2), pages 622-640, May.
    8. 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.
    9. Abdul Ghafoor & Rizwana John Weiss, 1999. "Privatisation of Electric Power Sector in Pakistan: Some Important Issues," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 38(1), pages 69-84.

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