Regulation
Productivity and efficiency of us gas transmission companies: A European regulatory perspective
European gas networks have a renewed importance. In the future they will have to resemble more the US pipeline network with flows in various directions. To benchmark European gas network this paper studies the productivity development of a panel of US interstate companies using data envelopment analysis and Malmquist productivity indices. Results are presented for changes in productivity, as well as for several convergence tests. The results indicate that taking productivity and convergence as performance indicators, regulation has been rather successful, in particular during a period where overall demand was flat. However, benchmarking-based regulation might have brought about stronger convergence. Lessons for European regulators are twofold. First, the US analysis shows that benchmarking of European transmission operators would be possible if data were available. Second, our results suggest that, in the long-run, market integration and competition are alternatives to the current European model. We wrote a related report for the The Council of European Energy Regulators.
Objectives and Incentives: Evidence from the Privatization of Great Britain’s Power Plants
Does privatization increase firm productivity because the private owner’s objective is different, or because she is better able to control management? And, is privatization sufficient to improve productivity, or is it only effective in combination with competition? This paper answer these questions by estimating difference-in-difference effects for plant-level input productivities for the case of Great Britain’s electricity industry privatization. To separate the effect of a change in objectives from a change in incentives we assume, that the former only affect labor but not fuel productivity. And, assuming that effective competition was only introduced after privatization, we are able to separately identify the effects of privatization and competition. We find that privatization increased labor but not fuel productivity: evidence for the importance of objectives. There is no evidence that the introduction of effective competition after privatization increased labor or fuel productivity.
Estimating Economies of Scale and Scope with Flexible Technology
Economies of scope are typically modelled and estimated using a cost or production function that is common to all firms in an industry irrespective of their type, e.g. whether they specialize in a single output or produce multiple outputs. Instead, in this paper we estimate a flexible technology model that allows for type-specific technologies and show how it can be estimated using linear parametric forms including the translog. A common technology remains a special case of our model and is testable econometrically. Our sample, of publicly owned US electric utilities, does not support a common technology for integrated and specialized firms. Our empirical results suggest that assuming a common technology might bias estimates of economies of scale and scope. Thus, if it can be more widely demonstrated that the production technologies employed by specialized and integrated firms differ, many previous results on scope economies were biased. We suggest reconsidering this previous literature, its empirical estimates, and the policy conclusions drawn from it.
The Effects of Vertical Separation and Competition: Evidence from US Electric Utility Restructuring
Competition increases firm productivity, but in network industries, effective competition requires vertical separation, which might reduce productivity and lead to a potential trade-off. In this paper we analyze the combined effect of competition and vertical separation on inefficient costs for US electricity industry restructuring. We estimate firm-level inefficiencies using different nonparametric models of the technology and calculate net benefits using difference-in-differences. Results depend on how we model the production technology and the length of the post-treatment horizon. The more flexible the production frontier the greater is the net benefit from divestiture and competition. Across our models the combined effect of divestiture and competition is positive.