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Benchmarking and incentive regulation of quality of service: an application to the UK electricity distribution utilities

  • Giannakis, D.
  • T. Jamasb
  • Pollitt, M.G.

Quality of service has emerged as an important issue in post-reform regulation of electricity distribution networks. Regulators have employed partial incentive schemes to promote cost saving, investment efficiency, and service quality. This paper presents a quality-incorporated benchmarking study of the electricity distribution utilities in the UK between 1991/92 and 1998/99. We calculate technical efficiency of the utilities using Data Envelopment Analysis technique and productivity change over time using quality-incorporated Malmquist indices. We find that cost efficient firms do not necessarily exhibit high service quality and that efficiency scores of cost-only models do not show high correlation with those of quality-based models. The results also show that improvements in service quality have made a significant contribution to the sector’s total productivity change. In addition, we show that integrating quality of service in regulatory benchmarking is preferable to cost-only approaches.

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File URL: http://www.econ.cam.ac.uk/electricity/publications/wp/ep35.pdf
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Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0408.

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Length: 38
Date of creation: Jan 2004
Date of revision:
Handle: RePEc:cam:camdae:0408
Note: CMI35, IO
Contact details of provider: Web page: http://www.econ.cam.ac.uk/index.htm

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  8. M.E. Beesley & S.C. Littlechild, 1989. "The Regulation of Privatized Monopolies in the United Kingdom," RAND Journal of Economics, The RAND Corporation, vol. 20(3), pages 454-472, Autumn.
  9. Clemenz, Gerhard, 1991. "Optimal Price-Cap Regulation," Journal of Industrial Economics, Wiley Blackwell, vol. 39(4), pages 391-408, June.
  10. R. D. Banker & A. Charnes & W. W. Cooper, 1984. "Some Models for Estimating Technical and Scale Inefficiencies in Data Envelopment Analysis," Management Science, INFORMS, vol. 30(9), pages 1078-1092, September.
  11. Fare, R. & Grosskopf, S. & Roos, P., 1995. "Productivity and quality changes in Swedish pharmacies," International Journal of Production Economics, Elsevier, vol. 39(1-2), pages 137-144, April.
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