IDEAS home Printed from https://ideas.repec.org/p/enp/wpaper/eprg1402.html

Dynamic Efficiency and Incentive Regulation: An Application to Electricity Distribution Networks

Author

Listed:
  • Rahmatallah Poudineh

    (Durham University Business School)

  • Grigorios Emvalomatis

    (Durham University Business School)

  • Tooraj Jamasb

    (Department of Economic Studies, University of Dundee)

Abstract

Efficiency and productivity analysis is a central concept in incentive-based regulation of network utilities. However, the efficiency measures obtained from benchmarking predominantly reflect short term performance and hence, provide only a snapshot of the firm's path towards its long run equilibrium. On the other hand, the factors affecting the short run behaviour of firms may not be adjusted instantaneously when firms undertake investment. In these instances, short run inefficiency caused by investments will be transmitted to subsequent periods. This effect, which arises from costs associated with the adjustment of capital stock or production capacity, is problematic under incentive regulation with ex-post regulatory treatment of capital expenditure. This is because it adversely affects the firms' short term efficiency and, consequently, regulated revenue. This paper analyses the dynamic behaviour of inefficiency for a balanced panel of 128 Norwegian electricity distribution companies from 2004 to 2010. We show that, in a given period, inefficiency is a combination of period-specific effects (shocks) plus a carry-over component from previous periods due to adjustment costs. Also, we estimate these two components of inefficiency along with the rate of inefficiency transmission between periods.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Rahmatallah Poudineh & Grigorios Emvalomatis & Tooraj Jamasb, 2014. "Dynamic Efficiency and Incentive Regulation: An Application to Electricity Distribution Networks," Working Papers EPRG 1402, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    • Handle: RePEc:enp:wpaper:eprg1402
    as

    Download full text from publisher

    File URL: https://www.jbs.cam.ac.uk/wp-content/uploads/2023/12/eprg-wp1402.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Remy Tehero & Emmanuel Brou Aka & Murat Cokgezen, 2020. "Drivers of the Quality of Electricity Supply," International Journal of Energy Economics and Policy, Econjournals, vol. 10(5), pages 183-195.
    2. Jorge E. Galán & Michael G. Pollitt, 2014. "Inefficiency persistence and heterogeneity in Colombian electricity distribution utilities," Working Papers EPRG 1403, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:enp:wpaper:eprg1402. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ruth Newman (email available below). General contact details of provider: https://edirc.repec.org/data/jicamuk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.