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An Analysis of Cost-Efficiency in Swiss Multi-utilities

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  • Mehdi Farsi

    () (Center for Energy Policy and Economics CEPE, Department of Management, Technology and Economics, ETH Zurich, Switzerland)

  • Massimo Filippini

    () (Center for Energy Policy and Economics CEPE, Department of Management, Technology and Economics, ETH Zurich, Switzerland)

Abstract

This study presents an empirical analysis of the cost efficiency of a sample of Swiss multi-utilities operating in the distribution of electricity, natural gas and water. The multi-utilities that operate in different sectors are characterized by a strong unobserved heterogeneity. Therefore the measurement of their performance poses an important challenge for the regulators. The purpose of this paper is to study the potential advantages of recently developed panel data stochastic frontier models in the measurement of the level of efficiency for multi-utility companies. These models are estimated for a sample of 34 multi-output utilities operating from 1997 to 2005. The alternative models are compared regarding the cost function slopes and inefficiency estimates. for the inefficiency estimates, the correlation between different models and the effect of econometric specification have been analyzed. The results suggest that the inefficiency estimates are substantially lower when the unobserved firm-specific effects are taken into account.

Suggested Citation

  • Mehdi Farsi & Massimo Filippini, 2008. "An Analysis of Cost-Efficiency in Swiss Multi-utilities," CEPE Working paper series 08-60, CEPE Center for Energy Policy and Economics, ETH Zurich.
  • Handle: RePEc:cee:wpcepe:08-60
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    Cited by:

    1. Carvalho, Pedro & Marques, Rui Cunha & Berg, Sanford, 2012. "A meta-regression analysis of benchmarking studies on water utilities market structure," Utilities Policy, Elsevier, vol. 21(C), pages 40-49.
    2. Assaf, A. George & Barros, Carlos Pestana & Managi, Shunsuke, 2011. "Cost efficiency of Japanese steam power generation companies: A Bayesian comparison of random and fixed frontier models," Applied Energy, Elsevier, vol. 88(4), pages 1441-1446, April.
    3. Lundgren, Tommy & Marklund, Per-Olov & Zhang, Shanshan, 2016. "Industrial energy demand and energy efficiency – Evidence from Sweden," Resource and Energy Economics, Elsevier, vol. 43(C), pages 130-152.
    4. Kopsakangas-Savolainen, Maria & Svento, Rauli, 2011. "Observed and unobserved heterogeneity in stochastic frontier models: An application to the electricity distribution industry," Energy Economics, Elsevier, vol. 33(2), pages 304-310, March.
    5. repec:eee:enepol:v:108:y:2017:i:c:p:606-616 is not listed on IDEAS
    6. Smith, Andrew S.J., 2012. "The application of stochastic frontier panel models in economic regulation: Experience from the European rail sector," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 48(2), pages 503-515.
    7. repec:eee:eneeco:v:69:y:2018:i:c:p:325-334 is not listed on IDEAS
    8. Stiel, Caroline & Cullmann, Astrid & Nieswand, Maria, 2015. "Productivity in the Electricity Retail Market: Does Ownership Matter? A Structural Production Function Approach for Germany," Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 112954, Verein für Socialpolitik / German Economic Association.
    9. Maria Nieswand & Matthias Walter, 2010. "Cost Efficiency and Subsidization in German Local Public Bus Transit," Discussion Papers of DIW Berlin 1071, DIW Berlin, German Institute for Economic Research.
    10. Massimo Filippini & Martin Koller, 2012. "Cost Efficiency Measurement in Postal Delivery Networks," Quaderni della facoltà di Scienze economiche dell'Università di Lugano 1206, USI Università della Svizzera italiana.
    11. Mohsen Pourebadollahan Covich & Archana Aggarwal, 2010. "Reform and Efficiency: An Application to Iranian Regional Electricity Companies," Iranian Economic Review, Economics faculty of Tehran university, vol. 15(2), pages 83-104, spring.
    12. Filippini, Massimo & Wetzel, Heike, 2014. "The impact of ownership unbundling on cost efficiency: Empirical evidence from the New Zealand electricity distribution sector," Energy Economics, Elsevier, vol. 45(C), pages 412-418.
    13. Caroline Stiel & Astrid Cullmann & Maria Nieswand, 2015. "Productivity in Electricity Retail after Market Liberalisation: Analysing the Effects of Ownership and Firm's Governance Structure," Discussion Papers of DIW Berlin 1531, DIW Berlin, German Institute for Economic Research.
    14. Li, Hong-Zhou & Tian, Xian-Liang & Zou, Tao, 2015. "Impact analysis of coal-electricity pricing linkage scheme in China based on stochastic frontier cost function," Applied Energy, Elsevier, vol. 151(C), pages 296-305.
    15. Anne-Kathrin Faust & Andrea Baranzini, 2014. "The economic performance of Swiss drinking water utilities," Journal of Productivity Analysis, Springer, vol. 41(3), pages 383-397, June.
    16. Matthias Walter, 2011. "Some Determinants of Cost Efficiency in German Public Transport," Journal of Transport Economics and Policy, University of Bath, vol. 45(1), pages 1-20, January.
    17. Goto, Mika & Sueyoshi, Toshiyuki, 2009. "Productivity growth and deregulation of Japanese electricity distribution," Energy Policy, Elsevier, vol. 37(8), pages 3130-3138, August.
    18. Bottasso, Anna & Conti, Maurizio & Piacenz, Massimiliano & Vannoni, Davide, 2011. "The appropriateness of the poolability assumption for multiproduct technologies: Evidence from the English water and sewerage utilities," International Journal of Production Economics, Elsevier, vol. 130(1), pages 112-117, March.
    19. Capece, Guendalina & Cricelli, Livio & Di Pillo, Francesca & Levialdi, Nathan, 2010. "A cluster analysis study based on profitability and financial indicators in the Italian gas retail market," Energy Policy, Elsevier, vol. 38(7), pages 3394-3402, July.
    20. Ayadi, Ahmed & Hammami, Sami, 2015. "An analysis of the performance of public bus transport in Tunisian cities," Transportation Research Part A: Policy and Practice, Elsevier, vol. 75(C), pages 51-60.
    21. Li, Hong-Zhou & Kopsakangas-Savolainen, Maria & Xiao, Xing-Zhi & Tian, Zhen-Zhen & Yang, Xiao-Yuan & Wang, Jian-Lin, 2016. "Cost efficiency of electric grid utilities in China: A comparison of estimates from SFA–MLE, SFA–Bayes and StoNED–CNLS," Energy Economics, Elsevier, vol. 55(C), pages 272-283.
    22. Capece, Guendalina & Cricelli, Livio & Di Pillo, Francesca & Levialdi, Nathan, 2012. "New regulatory policies in Italy: Impact on financial results, on liquidity and profitability of natural gas retail companies," Utilities Policy, Elsevier, vol. 23(C), pages 90-98.
    23. Filippini, Massimo & Hunt, Lester C. & Zorić, Jelena, 2014. "Impact of energy policy instruments on the estimated level of underlying energy efficiency in the EU residential sector," Energy Policy, Elsevier, vol. 69(C), pages 73-81.
    24. Caroline Stiel, 2017. "Modern Public Enterprises: Organisational Innovation and Productivity," Discussion Papers of DIW Berlin 1713, DIW Berlin, German Institute for Economic Research.

    More about this item

    Keywords

    cost function; efficiency; panel data; multi-output utilities;

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities

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