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Efficiency Analysis of German Electricity Distribution Utilities : Non-Parametric and Parametric Tests

  • von Hirschhausen, Christian R.
  • Cullmann, Astrid

This paper applies parametric and non-parametric and parametric tests to assess the efficiency of electricity distribution companies in Germany. We address traditional issues in electricity sector benchmarking, such as the role of scale effects and optimal utility size, as well as new evidence specific to the situation in Germany This paper applies parametric and non-parametric and parametric tests to asses the efficiency of electricity distribution companies in Germany. We use labor, capital, and peak load capacity as inputs, and units sold and the number of customers as output. The data covers 307 (out of 553) German electricity distribution utilities. We apply a data envelopment analysis (DEA) with constant returns to scale (CRS) as the main productivity analysis technique, whereas stochastic frontier analysis (SFA) with distance function is our verification method. The results suggest that returns to scale play a minor role; only very small utilities have a significant cost advantage. Low customer density is found to affect the efficiency score significantly in the lower third of all observations. Surprisingly, East German utilities feature a higher average efficiency than their West German counterparts. The correlation tests imply a high coherence of the results.

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Paper provided by Dresden University of Technology, Faculty of Business and Economics, Department of Economics in its series Dresden Discussion Paper Series in Economics with number 06/05.

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Date of creation: 2005
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Handle: RePEc:zbw:tuddps:0605
Contact details of provider: Postal: 01062 Dresden
Phone: ++49 351 463 2196
Fax: ++49 351 463 7739
Web page: http://www.tu-dresden.de/wiwi/Email:


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  1. Mork, Knut Anton, 1992. " Productivity in Swedish Electricity Retail Distribution: Comment," Scandinavian Journal of Economics, Wiley Blackwell, vol. 94(0), pages S207-09, Supplemen.
  2. Førsund, Finn R. & Kittelsen, Sverre A. C., 1998. "Productivity development of Norwegian electricity distribution utilities," Resource and Energy Economics, Elsevier, vol. 20(3), pages 207-224, September.
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  7. Growitsch, Christian & Wein, Thomas, 2005. "Network access charges, vertical integration, and property rights structure--experiences from the German electricity markets," Energy Economics, Elsevier, vol. 27(2), pages 257-278, March.
  8. Grosskopf, S. & Margaritis, D. & Valdmanis, V., 1995. "Estimating output substitutability of hospital services: A distance function approach," European Journal of Operational Research, Elsevier, vol. 80(3), pages 575-587, February.
  9. David Hauner, 2004. "Explaining Efficiency Differences Among Large German and Austrian Banks," IMF Working Papers 04/140, International Monetary Fund.
  10. Kostas Tsekouras & Dimitris Skuras, 2005. "Productive efficiency and exports: an examination of alternative hypotheses for the Greek cement industry," Applied Economics, Taylor & Francis Journals, vol. 37(3), pages 279-291.
  11. Rolf Fare & Shawna Grosskopf & William Weber, 2004. "The effect of risk-based capital requirements on profit efficiency in banking," Applied Economics, Taylor & Francis Journals, vol. 36(15), pages 1731-1743.
  12. Filippini, Massimo & Wild, Jorg, 2001. "Regional differences in electricity distribution costs and their consequences for yardstick regulation of access prices," Energy Economics, Elsevier, vol. 23(4), pages 477-488, July.
  13. Mehdi Farsi & Massimo Filippini, 2004. "Regulation and Measuring Cost-Efficiency with Panel Data Models: Application to Electricity Distribution Utilities," Review of Industrial Organization, Springer, vol. 25(1), pages 1-19, 08.
  14. Giannakis, D. & T. Jamasb & Pollitt, M.G., 2004. "Benchmarking and incentive regulation of quality of service: an application to the UK electricity distribution utilities," Cambridge Working Papers in Economics 0408, Faculty of Economics, University of Cambridge.
  15. Jamasb, Tooraj & Pollitt, Michael, 2003. "International benchmarking and regulation: an application to European electricity distribution utilities," Energy Policy, Elsevier, vol. 31(15), pages 1609-1622, December.
  16. Laure Latruffe & Kelvin Balcombe & Sophia Davidova & Katarzyna Zawalinska, 2004. "Determinants of technical efficiency of crop and livestock farms in Poland," Applied Economics, Taylor & Francis Journals, vol. 36(12), pages 1255-1263.
  17. Massimo Filippini, 1998. "Are Municipal Electricity Distribution Utilities Natural Monopolies?," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 69(2), pages 157-174, 06.
  18. Antonio Estache & MartÌn A. Rossi & Christian A. Ruzzier, 2004. "The Case for International Coordination of Electricity Regulation: Evidence from the Measurement of Efficiency in South America," Journal of Regulatory Economics, Springer, vol. 25(3), pages 271-295, 05.
  19. repec:ulb:ulbeco:2013/13372 is not listed on IDEAS
  20. Coelli, Tim & Perelman, Sergio, 1999. "A comparison of parametric and non-parametric distance functions: With application to European railways," European Journal of Operational Research, Elsevier, vol. 117(2), pages 326-339, September.
  21. Hjalmarsson, Lennart & Veiderpass, Ann, 1992. " Productivity in Swedish Electricity Retail Distribution," Scandinavian Journal of Economics, Wiley Blackwell, vol. 94(0), pages S193-205, Supplemen.
  22. Burns, Philip & Weyman-Jones, Thomas G, 1996. "Cost Functions and Cost Efficiency in Electricity Distribution: A Stochastic Frontier Approach," Bulletin of Economic Research, Wiley Blackwell, vol. 48(1), pages 41-64, January.
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