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Technical Inefficiency And Productive Decline In The U.S. Interstate Natural Gas Pipeline Industry Under The Natural Gas Policy Act

  • Mary L Streitwieser
  • Robin C Sickles

The U.S. natural gas industry has undergone substantial change since the enactment of the Natural Gas Policy Act of 1978. Although the major focus of the NGPA was to initiate partial and gradual price deregulation of natural gas at the well-head, the interstate transmission industry was profoundly affected by changes in the relative prices of competing fuels and contractual relationships among producers, transporters, distributors, and end-users. This paper assesses the impact of the NGPA on the technical efficiency and productivity of fourteen interstate natural gas transmission firms for the period 1978-1985. We focus on the distortionary effects that resulted in the industry during a period in which changes in regulatory policy could neither anticipate changing market conditions nor rapidly adjust to those changes. Two alternative estimating methodologies, stochastic frontier production analysis and data envelopment analysis, are used to measure the firm-specific and temporal distortionary effects. Concordant findings from these alternative methodologies suggest a pervasive pattern of declining technical efficiency in the industry during the period in which this major regulatory intervention was introduced and implemented. The representative firms experience an average annual decline in efficiency of .55 percent over the sample period. In addition, it appears that the industry suffered a decline in productivity during the sample period, averaging -1.18 percent annually.

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Paper provided by Center for Economic Studies, U.S. Census Bureau in its series Working Papers with number 91-6.

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Date of creation: Oct 1991
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Handle: RePEc:cen:wpaper:91-6
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  1. Gong, Byeong-Ho & Sickles, Robin C., 1991. "Finite Sample Evidence on the Performance of Stochastic Frontiers and Data Envelopment Analysis Using Panel Data," Working Papers 91-12, C.V. Starr Center for Applied Economics, New York University.
  2. Breusch, Trevor S & Mizon, Grayham E & Schmidt, Peter, 1989. "Efficient Estimation Using Panel Data," Econometrica, Econometric Society, vol. 57(3), pages 695-700, May.
  3. ZELLNER, Arnold & KMENTA, Jan & DREZE, Jacques H., . "Specification and estimation of Cobb-Douglas production function models," CORE Discussion Papers RP -12, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. Aigner, Dennis & Lovell, C. A. Knox & Schmidt, Peter, 1977. "Formulation and estimation of stochastic frontier production function models," Journal of Econometrics, Elsevier, vol. 6(1), pages 21-37, July.
  5. 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.
  6. Cornwell, Christopher & Schmidt, Peter & Wyhowski, Donald, 1992. "Simultaneous equations and panel data," Journal of Econometrics, Elsevier, vol. 51(1-2), pages 151-181.
  7. Charnes, A. & Cooper, W. W. & Rhodes, E., 1978. "Measuring the efficiency of decision making units," European Journal of Operational Research, Elsevier, vol. 2(6), pages 429-444, November.
  8. Aivazian, Varouj A, et al, 1987. "Economies of Scale versus Technological Change in the Natural Gas Transmission Industry," The Review of Economics and Statistics, MIT Press, vol. 69(3), pages 556-61, August.
  9. Cornwell, Christopher & Schmidt, Peter & Sickles, Robin C., 1990. "Production frontiers with cross-sectional and time-series variation in efficiency levels," Journal of Econometrics, Elsevier, vol. 46(1-2), pages 185-200.
  10. Schmidt, Peter & Sickles, Robin C, 1984. "Production Frontiers and Panel Data," Journal of Business & Economic Statistics, American Statistical Association, vol. 2(4), pages 367-74, October.
  11. Niels Christian Petersen, 1990. "Data Envelopment Analysis on a Relaxed Set of Assumptions," Management Science, INFORMS, vol. 36(3), pages 305-314, March.
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