Benchmarking and Firm Heterogeneity in Electricity Distribution: A Latent Class Analysis of Germany

In January 2009 Germany introduced incentive regulation for the electricity distribution sector based on results obtained from econometric and nonparametric benchmarking analysis. One main problem for the regulator in assigning the relative efficiency scores are unobserved firm-specific factors such as network and technological differences. Comparing the efficiency of different firms usually assumes that they operate under the same production technology, thus unobserved factors might be inappropriately understood as inefficiency. To avoid this type of misspecification in regulatory practice estimation is carried out in two stages: in a first stage observations are classified into two categories according to the size of the network operators. Then separate analyses are conducted for each sub-group. This paper shows how to disentangle the heterogeneity from inefficiency in one step, using a latent class model for stochastic frontiers. As the classification is not based on a priori sample separation criteria it delivers more robust, statistical significant and testable results. Against this backround we analyze the level of technical efficiency of a sample of 200 regional and local German electricity distribution companies for a balanced panel data set (2001-2005). Testing the hypothesis if larger distributors operate under a different technology than smaller ones we assess if a single step latent class model provides new insights to the use of benchmarking approaches within the incentive regulation schemes.Stochastic frontiers, latent class model, electricity distribution, incentive regulation

Potential Gains from Mergers in Local Public Transport: An Efficiency Analysis Applied to Germany

We analyze potential gains from hypothetical mergers in local public transport using the non-parametric Data Envelopment Analysis with bias corrections by means of bootstrapping. Our sample consists of 41 public transport companies from Germany's most densely populated region, North Rhine-Westphalia. We merge them into geographically meaningful, larger units that operate partially on a joint tram network. Merger gains are then decomposed into individual technical efficiency, synergy and size effects following the methodology of Bogetoft and Wang [Bogetoft, P., Wang, D., 2005. Estimating the Potential Gains from Mergers. Journal of Productivity Analysis, 23(2), 145-171]. Our empirical findings suggest that substantial gains up to 16 percent of factor inputs are present, mainly resulting from synergy effects.Merger, Public Transport, Efficiency, Data Envelopment Analysis

Next Stop: Restructuring?: A Nonparametric Efficiency Analysis of German Public Transport Companies

In this paper, we present a nonparametric comparative efficiency analysis of 179 communal public transport bus companies in Germany (1990-2004). We apply both deterministic data envelopment analysis (DEA) and bootstrapping to test the robustness of our estimates and to test the hypothesis of global and individual constant returns to scale. We find that the average technical efficiency of German bus companies is relatively low. We observe that the industry appears to be characterized by increasing returns to scale for smaller companies. These results would imply increasing pressure on bus companies to restructure.Public transport, buses, efficiency analysis, nonparametric methods, DEA, bootstrapping

Overcoming Data Limitations in Nonparametric Benchmarking: Applying PCA-DEA to Natural Gas Transmission

This paper provides an empirical demonstration for a practical approach of efficiency evaluation against the background of limited data availability in some regulated industries. Here, traditional DEA may result in a lack of discriminatory power when high numbers of variables but only limited observations are available. We apply PCA-DEA for radial efficiency measurement to US natural gas transmission companies in 2007. This allows us to reduce dimensions of the optimization problem while maintaining most of the variation in the original data. Our results suggest that the PCA-DEA methodology reduces the probability of over-estimation of the individual firm-specific performance. It also allows for a large number of original variables without substantially reducing the discriminatory power of the model.Efficiency analysis, DEA, PCA, company regulation, natural gas transmission

Unobserved Heterogeneity and International Benchmarking in Public Transport

We analyze the technical efficiency of German and Swiss urban public transport companies by means of SFA. In transport networks we might face different network structures or complexities, not observed, but influencing the production process. The unobserved factors are typically modeled as separable factors. However, we argue that the entire production process is organized around different network structures. Therefore, they are inevitably non-separable from the observed inputs and outputs. The adopted econometric model is a random coefficient stochastic frontier model. We estimate an input distance function for the years 1991 to 2006. The results underline the presence of unobserved non-separable factors.

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

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. --Efficiency analysis,econometric methods,electricity distribution,benchmarking,Germany

Unobserved Heterogeneity and International Benchmarking in Public Trasport

We analyze the technical efficiency of German and Swiss urban public transport companies by means of SFA. In transport networks we might face different network structures or complexities, not observed, but influencing the production process. The unobserved factors are typically modeled as separable factors. However, we argue that the entire production process is organized around different network structures. Therefore, they are inevitably non-separable from the observed inputs and outputs. The adopted econometric model is a random coefficient stochastic frontier model. We estimate an input distance function for the years 1991 to 2006. The results underline the presence of unobserved non-separable factors.distance function, unobserved heterogeneity, technical efficiency, bus industry, panel data

Socio-Economic Trends and New Territorial Dynamics in the European Union : Convergence and Agglomeration

In this study, we explore how general socio-economic trends within the European Union are reflected in the development of different types of regions during the period from 1995 to 2009 and how economic disparities between EU regions change in the course of these processes. Overall, there is a decrease of regional inequalities in terms of per-capita income, but this is mainly the result of catching up of the Middle and Eastern European countries. Disparities within the EU15 and the EU 12 have remained constant. Moreover, all of the socio-economic tendencies considered in this study in their spatial dimension the shift towards services, the shift towards technology and knowledge-intensive activities, the rise in labour market participation and the renewed tendency towards urbanisation point at a persistent or even increasing spatial concentration of economic activities. Thus, we observe two overlapping and opposing trends: convergence and agglomeration. Finally, the regions of the new member states have been gradually catching up in terms of income and productivity since 2000, but the wide gap between the EU12 and the EU15 regarding technology, knowledgeintensity and innovation is hardly narrowing. It might take very long for the EU12 countries to approach the development level of the old member states.This publication was produced as part of the NEUJOBS project, funded by the European Commission through the 7th Framework Programme under contract no. 266833 (http://www.neujobs)

International Benchmarking in Electricity Distribution: A Comparison of French and German Utilities

In this paper we present an international cross-country benchmarking analysis for utility regulation of France and Germany, the two largest electricity distribution countries in Europe. We examine the relative performance of 99 French and 77 German distribution companies operating within two different market structures. This paper applies several parametric benchmarking approaches to assess the relative technical efficiency of the utilities, such as deterministic Corrected Ordinary Least Squares (COLS) and Stochastic Frontier Analysis (SFA). Our base model uses the number of employees as a proxy for labor and network length as a proxy for capital as inputs. Units sold and the numbers of customers are considered as outputs. Our model variations and extensions analyze the effect of different characteristics of distribution areas (e.g. population density and the choice of investment in underground cable network). We find that utilities operating in urban areas feature higher efficiency scores and that investment in underground cables increase the technical efficiency of the distribution utilities.International benchmarking, electricity distribution, parametric efficiency analysis

Efficiency Analysis of East European Electricity Distribution in Transition: Legacy of the Past?

This paper provides a cross-country efficiency analysis of electricity distribution companies in East European transition countries (Poland, Czech Republic, Slovakia and Hungary). We compare the relative technical efficiency of East European regional distribution companies (RDCs) among themselves, as well as with German RDCs. We use the nonparametric DEA, and also apply bootstrapping techniques and the FDH-estimator; in addition, we carry out parametric analyses, mainly SFA (stochastic frontier analysis) and COLS (corrected ordinary least squares). The results suggest that the Polish distribution companies are still inefficiently small. The Czech Republic and Slovakia feature the highest efficiency.Efficiency analysis, Econometric methods, Electricity distribution, Transition, Eastern Europe