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Changing times: Incentive regulation, corporate reorganisations, and productivity in the Great Britain’s gas networks

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  • Ajayi, V.
  • Pollitt, M.

Abstract

The gas industry in Great Britain has witnessed periodic regulatory reviews and large corporate changes over the last few decades. We undertake two separate analyses for the total factor productivity (TFP) of the gas networks using a non-parametric data envelopment analysis (DEA) approach to assess how these changes are impacting on productivity growth. First, we set out different models for the TFP analysis, each for gas transmission and distribution network, to examine how changes in incentive mechanism have influenced the measured TFP using quality of service and environmental targets. Quality standards from regulators warrant some adjustment to explore industry productivity growth. Second, we construct a combined single series for distribution and transmission using financial data to uncover how corporate reorganisations have impacted measured productivity to get a new perspective in the years before and after restructuring, when the industry went from being a single integrated transmission and distribution network to the disintegrated networks of today. We find a negative TFP growth of -1.6% p.a. for gas transmission over the sample period (2006/07-2018/19). Although, this is reversed to a positive growth once quality is included. For gas distribution, we actually find that productivity regress at -6.2% p.a. over the sample period (2006/07-2018/19), with the negative TFP trend observed across all the models, despite the inclusion of quality variables. However, we find a slightly higher TFP growth of 1% using corporate accounts over the 25 years from 1995/1996-2020/2021. The period before restructuring has a more positive productivity compared to the post-restructuring era with negative productivity growth.

Suggested Citation

  • Ajayi, V. & Pollitt, M., 2022. "Changing times: Incentive regulation, corporate reorganisations, and productivity in the Great Britain’s gas networks," Cambridge Working Papers in Economics 2254, Faculty of Economics, University of Cambridge.
  • Handle: RePEc:cam:camdae:2254
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    Cited by:

    1. Ajayi, V. & Pollitt, M .G., 2022. "Green growth and net zero policy in the UK: some conceptual and measurement issues," Cambridge Working Papers in Economics 2255, Faculty of Economics, University of Cambridge.

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    More about this item

    Keywords

    Total factor productivity; incentive regulation; corporate reorganisations; gas networks; data envelopment analysis.;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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