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

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

Adoption of innovation in agriculture:A critical review of economic and psychological models

Two main models have been used to analyse farmers’ decisions toadopt an innovation; the first is based on the concept of utility maximisation(UM) and the second is based on the theory of planned behaviour (TPB). Thisstudy uses a vote-count method to identify the effect of different variables onfarmers’ adoption decisions in 36 studies using either UM or the TPB. Resultsfrom the UM studies show that the explanatory variables mostly have aninsignificant effect on the adoption decision. When the effects are significant,the sign of the effect is inconsistent across studies. Results from the TPBstudies show that correlations between the psychological constructs used in thistype of model are significant in most cases. However, most variables are onlyused in one or two studies and it is therefore no

Measuring productivity and efficiency: a Kalman filter approach

In the Kalman filter setting, one can model the inefficiency term of the standard stochastic frontier composed error as an unobserved state. In this study a panel data version of the local level model is used for estimating time-varying efficiencies of firms. We apply the Kalman filter to estimate average efficiencies of U.S. airlines and find that the technical efficiency of these carriers did not improve during the period 1999-2009. During this period the industry incurred substantial losses, and the efficiency gains from reorganized networks, code-sharing arrangements, and other best business practices apparently had already been realized

Estimating shadow prices and efficiency analysis of productive inputs and pesticide use of vegetable production

This paper analyzes technical efficiency and the value of the marginal product of productive inputs vis-a-vis pesticide use to measure allocative efficiency of pesticide use along productive inputs. We employ the data envelopment analysis framework and marginal cost techniques to estimate technical efficiency and the shadow values of each input. A bootstrap technique is applied to overcome the limitations of DEA and helps to estimate the mean and 95 percent confidence intervals of the estimated quantities. The methods are applied to a sample of vegetable producers in Benin over the period 2009-2010. Results indicated that bias corrected technical efficiency scores are lower than the initial measures and the former estimates are statistically significant. The application results show that vegetable producers are less efficient with respect to pesticide use than other inputs. Also, results suggest that pesticides, land and fertilizers are overused.</p

The Effect of Crop Specialization on Farms' Performance : A Bayesian Non-neutral Stochastic Frontier Approach

A Bayesian non-neutral stochastic input distance function model is used to examine whether output specialization has an impact on the economic performance of vegetable producers in Benin. Specialization is assumed to have an effect on the production frontier itself, as well as on the distance of each producer's observed data to this frontier (technical efficiency). A derivative-based measure of economies of scope is obtained by exploiting the duality between the shadow cost and the input distance functions. In this study, we also control for spatial heterogeneity of vegetable production by including a soil fertility variable in the production function at the farm level. The technology is found to exhibit no economies of scope, indicating that vegetable producers have no incentive for specialization or diversification. However, the degree of specialization has a positive effect on technical efficiency. From a policy perspective, the findings imply that policies to encourage specialization may lead to higher performance

Assessing the impact of crop specialization on farms’ performance in vegetables farming in Benin: a non-neutral stochastic frontier approach

A non-neutral stochastic distance function model is used to examine whether output specialization has an impact on the economic performance of vegetable producers in Benin. Specialization is assumed to have an effect on the production frontier and on the distance to the production frontier (technical inefficiency). The technology is found to exhibit diseconomies of scope, indicating that vegetable producers have an incentive for specialization. At the same time, the degree of specialization has a positive effect on technical efficiency. From a policy perspective, the findings imply that current government policies to encourage diversification may lead to a lower performance