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Measuring Inefficiency in Public Utilities: Does the Distribution Matter?

Author

Listed:
  • Rossi, Martín

    (Universidad Argntina de la Empresa)

  • Canay, Iván

    (Universidad Argntina de la Empresa)

Abstract

In this paper we describe two of the most used distributions for the inefficiency term in a stochastic frontier: the Half Normal and the Exponential distributions. We then show that both distributions affect the skewness of the composite error term in different ways, which make the Exponential distribution more inclined to identifying a larger number of efficient firms. In order to check these results we perform MOLS and ML, using four databases already used in previous work. We find that the mean efficiency is sensitive to the assumed distribution. In all cases we corroborate that the Exponential distribution identifies a larger number of efficient firms than the Half Normal, as the theory predicted. However, the rankings of firms by efficiency scores were not affected by the choice of distribution.

Suggested Citation

  • Rossi, Martín & Canay, Iván, 2001. "Measuring Inefficiency in Public Utilities: Does the Distribution Matter?," UADE Working Papers 12_2001, Instituto de Economía, Universidad Argentina de la Empresa.
  • Handle: RePEc:ris:uadewp:2001_012
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    Cited by:

    1. Romero, Carlos, 2010. "Servicio Universal en el proceso de privatización de las empresas de telecomunicaciones y agua potable y alcantarillado en el Paraguay," UADE Textos de Discusión 34_2001, Instituto de Economía, Universidad Argentina de la Empresa.
    2. Canay, Iván, 2002. "Eficiencia y Productividad en Distribuidoras Eléctricas: Repaso de la Metodología y Aplicación," UADE Textos de Discusión 35_2002, Instituto de Economía, Universidad Argentina de la Empresa.

    More about this item

    Keywords

    stochastic frontier; efficiency; distribution;

    JEL classification:

    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
    • L90 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - General

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