Efficiency Considerations in the Electricity Supply Industry; The Case of Iran
Electricity plays a vital role in modern economies. It is considered a core activity in the economic development plans of most countries. The requirement of large investments in the power sector and the rising cost of electricity provision have intensified the need for increased efficiency in the Iranian electricity supply industry. This study provides an efficiency analysis of the electricity industry in Iran. It presents efficiency scores for the Iranian electricity industry relative to the efficient frontier for electricity production, and in relation to the electricity industries of 26 developing countries. The average level of technical efficiencies in the electricity industry of these developing countries, the Iranian power plants and regional distribution organisations are estimated at 77%, 72.7% and 81% respectively. They are based on a two-year panel data of 26 developing countries, six-year unbalanced panel data of thirty Iranian power plants and one cross-section of thirty distribution organisations taken in 1995. This study utilises two popular techniques; Stochastic Frontier Analysis (SFA) and Data Envelopment Analysis (DEA). The use of both SFA and DEA extends the capabilities of addressing issues in ways that would otherwise not be available. Econometric models using panel data are employed to investigate technical inefficiencies. The Malmquist index approach is applied to investigate technological change, technical and scale efficiency changes in the electricity industry in the sample of developing countries as well as Iranian power plants. The DEA efficiency scores are used in Tobit models to determine which factors are the main causes of inefficiency.
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