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Semi-Parametric Measures of Scale Characteristics of German Natural Gas-Fired Electricity Generation

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  • Stefan Seifert

Abstract

Scale characteristics are key properties of production functions that determine optimal firm sizes, and have considerable policy implications for sectors undergoing restructuring. However, estimates of scale characteristics typically vary with the assumptions of the underlying empirical model. This paper derives estimators of scale efficiency and scale elasticity for semi-parametric stochastic non-smooth envelopment of data (StoNED) that are based on few assumptions and rely neither on a functional form nor on distributional assumptions, but satisfy basic microeconomic properties. The estimators are applied to a unique sample covering 124 natural gas-fired power plants operating in Germany in 2011. Results indicate that on average plants operate under constant to slightly decreasing returns-to-scale, and scale inefficiency is found to be overall rather low. However, considerable improvement potential exists due to technical inefficiency. The results allow the strong fragmentation of gas-fired electricity generation in Germany, but emphasize the importance of using best practices on plant level.

Suggested Citation

  • Stefan Seifert, 2016. "Semi-Parametric Measures of Scale Characteristics of German Natural Gas-Fired Electricity Generation," Discussion Papers of DIW Berlin 1571, DIW Berlin, German Institute for Economic Research.
  • Handle: RePEc:diw:diwwpp:dp1571
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    Keywords

    Stochastic Non-Smooth Envelopment of Data (StoNED); Returns-to-scale; Scale Elasticities; Scale Effciency; Gas-fired Electricity Generation; Germany;

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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