The Impact of Competition and Corporate Structure on Productive Efficiency: The Case of the U.S. Electric Utility Industry, 1990-2004
In this study, we present empirical evidence on the productive efficiency of electric utilities in the United States over the period, 1990-2004. This is a period marked by major attempts to introduce competition in the industry with the expectation that it will lead firms to improve their productive efficiency and ultimately to lower consumer prices. The actual experience has been surprising, since electricity prices have either fallen little or even risen sharply in some states. Relying on recent advances in the estimation of productive efficiency, we find that firms in jurisdictions that adopted competitive mechanisms have lower productive efficiency compared to firms in jurisdictions where rate-of-return regulation was retained. Furthermore, we provide evidence that firms in states that adopted competition have experienced decreases in productive efficiency, while firms in states with traditional regulation saw increases in efficiency over time. Since the introduction of deregulation has brought greater discretion to managers, we also examine the impact of various organizational choices on productive efficiency. Interestingly, the separation of the generation function from other functions, a hallmark of the effort to deregulate the industry, is associated with an adverse impact on productive efficiency. These findings question the claim that competition necessarily fosters higher productive efficiency. Alternatively, true competition may have been circumvented.
|Date of creation:||May 2007|
|Contact details of provider:|| Phone: (614) 292-8449|
Web page: http://www.cob.ohio-state.edu/fin/dice/list.htm
More information through EDIRC
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.:
- Antoinette Schoar, 2002. "Effects of Corporate Diversification on Productivity," Journal of Finance, American Finance Association, vol. 57(6), pages 2379-2403, December.
- Lang, Larry H P & Stulz, Rene M, 1994.
"Tobin's q, Corporate Diversification, and Firm Performance,"
Journal of Political Economy,
University of Chicago Press, vol. 102(6), pages 1248-1280, December.
- Larry H.P. Lang & Rene M. Stulz, 1993. "Tobin's Q, Corporate Diversification and Firm Performance," NBER Working Papers 4376, National Bureau of Economic Research, Inc.
- Subal C. Kumbhakar & Ana Lozano-Vivas, 2004.
"Deregulation and Productivity: The Case of Spanish Banks,"
Economic Working Papers at Centro de Estudios Andaluces
E2004/24, Centro de Estudios Andaluces.
- Subal kumbhakar & Ana Lozano-Vivas, 2005. "Deregulation and Productivity: The Case of Spanish Banks," Journal of Regulatory Economics, Springer, vol. 27(3), pages 331-351, 01.
- George S Olley & Ariel Pakes, 1992.
"The Dynamics Of Productivity In The Telecommunications Equipment Industry,"
92-2, Center for Economic Studies, U.S. Census Bureau.
- Olley, G Steven & Pakes, Ariel, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, Econometric Society, vol. 64(6), pages 1263-1297, November.
- G. Steven Olley & Ariel Pakes, 1992. "The Dynamics of Productivity in the Telecommunications Equipment Industry," NBER Working Papers 3977, National Bureau of Economic Research, Inc.
- Markiewicz, K. & Rose, N.L. & Wolfram, C., 2004.
"Does Competition Reduce Costs? Assessing the Impact of Regulatory Restructuring on U.S. Electric Generation Efficiency,"
Cambridge Working Papers in Economics
0472, Faculty of Economics, University of Cambridge.
- Nancy L. Rose & Kira Markiewicz & Catherine Wolfram, 2004. "Does Competition Reduce Costs? Assessing the Impact of Regulatory Restructuring on U.S. Electric Generation Efficiency," Working Papers 0418, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
- Jim Griffin & Mark Steel, 2007.
"Bayesian stochastic frontier analysis using WinBUGS,"
Journal of Productivity Analysis,
Springer, vol. 27(3), pages 163-176, June.
- Jim Griffin & Mark Steel, 2005. "Bayesian Stochastic Frontier Analysis Using WinBUGS," Econometrics 0509004, EconWPA.
- Kumbhakar, Subal C. & Tsionas, Efthymios G., 2005. "Measuring technical and allocative inefficiency in the translog cost system: a Bayesian approach," Journal of Econometrics, Elsevier, vol. 126(2), pages 355-384, June.
- Kaserman, David L & Mayo, John W, 1991. "The Measurement of Vertical Economies and the Efficient Structure of the Electric Utility Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 39(5), pages 483-502, September.
- Stephen Nickell, 1993.
"Competition and Corporate Performance,"
CEP Discussion Papers
dp0182, Centre for Economic Performance, LSE.
- Campa, Jose M. & Kedia, Simi, 2000.
"Explaining the diversification discount,"
IESE Research Papers
D/424, IESE Business School.
- Efthymios G. Tsionas, 2002.
"Stochastic frontier models with random coefficients,"
Journal of Applied Econometrics,
John Wiley & Sons, Ltd., vol. 17(2), pages 127-147.
- Tsionas, E.G., 2001. "Stochastic Frontier Models with Random Coefficients," Athens University of Economics and Business 130, Athens University of Economics and Business, Department of International and European Economic Studies.
- Tsionas, E.G., 2001. "Stochastic Frontier Models with Random Coefficients," DEOS Working Papers 130, Athens University of Economics and Business.
- Diewert, W. E., 1976. "Exact and superlative index numbers," Journal of Econometrics, Elsevier, vol. 4(2), pages 115-145, May.
- Sanford Berg & Chen Lin & Valeriy Tsaplin, 2005. "Regulation of State-Owned and Privatized Utilities: Ukraine Electricity Distribution Company Performance," Journal of Regulatory Economics, Springer, vol. 28(3), pages 259-287, November.
- Mark J. Roberts, 1986. "Economies of Density and Size in the Production and Delivery of Electric Power," Land Economics, University of Wisconsin Press, vol. 62(4), pages 378-387.
- Fernandez, Carmen & Koop, Gary & Steel, Mark, 2000.
"A Bayesian analysis of multiple-output production frontiers,"
Journal of Econometrics,
Elsevier, vol. 98(1), pages 47-79, September.
- Carmen Fernandez & Gary Koop & Mark F J Steel, 1999. "A Bayesian analysis of multiple-output production frontier," ESE Discussion Papers 21, Edinburgh School of Economics, University of Edinburgh.
- Severin Borenstein & James B. Bushnell & Frank A. Wolak, 2002. "Measuring Market Inefficiencies in California's Restructured Wholesale Electricity Market," American Economic Review, American Economic Association, vol. 92(5), pages 1376-1405, December.
- Giovanni Fraquelli & Massimiliano Piacenza & Davide Vannoni, 2004. "Scope and scale economies in multi-utilities: evidence from gas, water and electricity combinations," Applied Economics, Taylor & Francis Journals, vol. 36(18), pages 2045-2057.
- 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.
- Broeck, Julien Van den & Steel, Mark F.J. & Osiewalski, Jacek & Koop, Gary, 1992.
"Stochastic frontier models: a bayesian perspective,"
UC3M Working papers. Economics
2823, Universidad Carlos III de Madrid. Departamento de Economía.
- van den Broeck, Julien & Koop, Gary & Osiewalski, Jacek & Steel, Mark F. J., 1994. "Stochastic frontier models : A Bayesian perspective," Journal of Econometrics, Elsevier, vol. 61(2), pages 273-303, April.
- Lyubov A. Kurkalova & Alicia Carriquiry, 2002. "An Analysis of Grain Production Decline During the Early Transition in Ukraine: A Bayesian Inference," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(5), pages 1256-1263.
- Mizutani, Fumitoshi & Uranishi, Shuji, 2003. "The Post Office vs. Parcel Delivery Companies: Competition Effects on Costs and Productivity," Journal of Regulatory Economics, Springer, vol. 23(3), pages 299-319, May.
- Koop, Gary & Osiewalski, Jacek & Steel, Mark F J, 1994.
"Bayesian Efficiency Analysis with a Flexible Form: The AIM Cost Function,"
Journal of Business & Economic Statistics,
American Statistical Association, vol. 12(3), pages 339-346, July.
- Koop, G. & Osiewalski, J. & Steel, M.F.J., 1994. "Bayesian efficiency analysis with a flexible form : The aim cost function," Discussion Paper 1994-13, Tilburg University, Center for Economic Research.
- KOOP, Gary & STEEL, Mark F. & OSIEWALSKI, Jacek, 1994.
"Posterior Analysis of Stochastic Frontier Models using Gibbs Sampling,"
CORE Discussion Papers
1994061, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Osiewalski, Jacek & Steel, Mark F.J. & Koop, Gary, 1992. "Posterior analysis of stochastic frontier models using Gibbs sampling," DES - Working Papers. Statistics and Econometrics. WS 3677, Universidad Carlos III de Madrid. Departamento de Estadística.
- Sing, Merrile, 1987. "Are Combination Gas and Electric Utilities Multiproduct Natural Monopolies?," The Review of Economics and Statistics, MIT Press, vol. 69(3), pages 392-98, August.
- Berger, Philip G. & Ofek, Eli, 1995. "Diversification's effect on firm value," Journal of Financial Economics, Elsevier, vol. 37(1), pages 39-65, January.
- Tomas Jandik & Anil K. Makhija, 2005. "Can Diversification Create Value? Evidence from the Electric Utility Industry," Financial Management, Financial Management Association, vol. 34(1), pages -, Spring.
- Battese, George E. & Corra, Greg S., 1977. "Estimation Of A Production Frontier Model: With Application To The Pastoral Zone Of Eastern Australia," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 21(03), pages -, December.
- Koop, Gary & Osiewalski, Jacek & Steel, Mark F. J., 1997.
"Bayesian efficiency analysis through individual effects: Hospital cost frontiers,"
Journal of Econometrics,
Elsevier, vol. 76(1-2), pages 77-105.
- Koop, G. & Osiewalski, J. & Steel, M. F. J., . "Bayesian efficiency analysis through individual effects: Hospital cost frontiers," CORE Discussion Papers RP 1245, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- KOOP , Gary & OSIEWALSKI , Jacek & STEEL , Mark, 1995. "Bayesian Efficiency Analysis through Individual Effects : Hospital Cost Frontiers," CORE Discussion Papers 1995036, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Saal, David S & Parker, David, 2001. "Productivity and Price Performance in the Privatized Water and Sewerage Companies of England and Wales," Journal of Regulatory Economics, Springer, vol. 20(1), pages 61-90, July.
- Belén Villalonga, 2004. "Diversification Discount or Premium? New Evidence from the Business Information Tracking Series," Journal of Finance, American Finance Association, vol. 59(2), pages 479-506, 04.
- Ng, Charles K & Seabright, Paul, 2001. "Competition, Privatisation and Productive Efficiency: Evidence from the Airline Industry," Economic Journal, Royal Economic Society, vol. 111(473), pages 591-619, July.
- Battese, G E & Coelli, T J, 1995. "A Model for Technical Inefficiency Effects in a Stochastic Frontier Production Function for Panel Data," Empirical Economics, Springer, vol. 20(2), pages 325-332.
When requesting a correction, please mention this item's handle: RePEc:ecl:ohidic:2007-10. 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: ()
If references are entirely missing, you can add them using this form.