Estimating Marginal Cost of Quality Improvements: The Case of the UK Electricity Distribution Companies
The main aim of this paper is to develop an econometric approach to estimation of marginal costs of improving quality of service. We implement this methodology by way of applying it to the case of the UK electricity distribution networks. The estimated marginal costs allow us to shed light on the effectiveness of the current UK incentive regulation to improve quality, and to derive optimal quality levels and welfare losses due to sub-optimal quality levels. The proposed method also allows us to measure the welfare effect of the observed quality improvements in the UK between 1995 and 2003. Our results suggest that while the incentive schemes established by the regulator to encourage utilities to reduce network energy losses leads to improvement in sector performance, they do not provide utilities with sufficient incentives to avoid power interruptions. We find that the observed improvements in quality during the period of this study only represented 30% of the potential customer welfare gains, and hence there was still significant scope for quality improvements.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Guldmann, Jean-Michel, 1985. "A disaggregate econometric analysis of electricity distribution capital costs," Energy, Elsevier, vol. 10(5), pages 601-612.
- Plümper, Thomas & Troeger, Vera E., 2007. "Efficient Estimation of Time-Invariant and Rarely Changing Variables in Finite Sample Panel Analyses with Unit Fixed Effects," Political Analysis, Cambridge University Press, vol. 15(02), pages 124-139, March.
- Massimo Filippini, 1998. "Are Municipal Electricity Distribution Utilities Natural Monopolies?," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 69(2), pages 157-174, 06.
- Huang, Yi-Ju & Chen, Ku-Hsieh & Yang, Chih-Hai, 2010. "Cost efficiency and optimal scale of electricity distribution firms in Taiwan: An application of metafrontier analysis," Energy Economics, Elsevier, vol. 32(1), pages 15-23, January.
- Yu, William & Jamasb, Tooraj & Pollitt, Michael, 2009. "Does weather explain cost and quality performance? An analysis of UK electricity distribution companies," Energy Policy, Elsevier, vol. 37(11), pages 4177-4188, November.
- David Sappington, 2005. "Regulating Service Quality: A Survey," Journal of Regulatory Economics, Springer, vol. 27(2), pages 123-154, November.
- Giannakis, Dimitrios & Jamasb, Tooraj & Pollitt, Michael, 2005. "Benchmarking and incentive regulation of quality of service: an application to the UK electricity distribution networks," Energy Policy, Elsevier, vol. 33(17), pages 2256-2271, November.
- Jamasb, Tooraj & Pollitt, Michael, 2007.
"Incentive regulation of electricity distribution networks: Lessons of experience from Britain,"
Elsevier, vol. 35(12), pages 6163-6187, December.
- Jamasb, T. & Pollitt, M., 2007. "Incentive Regulation of Electricity Distribution Networks: Lessons of Experience from Britain," Cambridge Working Papers in Economics 0709, Faculty of Economics, University of Cambridge.
- Ajodhia, Virendra & Hakvoort, Rudi, 2005. "Economic regulation of quality in electricity distribution networks," Utilities Policy, Elsevier, vol. 13(3), pages 211-221, September.
- Cronin, Frank J. & Motluk, Stephen A., 2007. "How Effective Are M&As in Distribution? Evaluating the Government's Policy of Using Mergers and Amalgamations to Drive Efficiencies into Ontario's LDCs," The Electricity Journal, Elsevier, vol. 20(3), pages 60-68, April.
- Kjell G. Salvanes & Sigve Tjøtta, 1998. "A Test for Natural Monopoly with Application to Norwegian Electricity Distribution," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 13(6), pages 669-685, December.
- William Yu & Tooraj Jamasb & Michael Pollitt, 2009. "Willingness-to-Pay for Quality of Service: An Application to Efficiency Analysis of the UK Electricity Distribution Utilities," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 1-48.
- Jamasb, T. & Pollitt, M., 2000. "Benchmarking and regulation: international electricity experience," Utilities Policy, Elsevier, vol. 9(3), pages 107-130, September. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:cam:camdae:1052. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jake Dyer)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.