Efficiency and Productivity Analysis in Regulation and Governance

This paper surveys the application of efficiency and productivity analysis to recent regulatory experience, especially in Europe. From a review of regulatory case studies, particularly of network industries, it is clear that regulatory practice differs from theoretical precedent in choice of methodology, sample size, model specification and price or revenue control implementation. A principal-agent model of linear regulatory contracts is used to understand this discrepancy, suggesting that efficiency and productivity analysis has been used to capture economic rent rather than to provide incentives for efficiency. Predictions of the model are used to investigate other assumptions in efficiency and productivity analysis.regulation, data envelopment analysis, stochastic frontier analysis.

Regulatory Benchmarking with Panel Data

This paper considers panel data procedures for regulatory benchmarking that allow for both latent heterogeneity and inefficiency, encapsulating the regulatory dilemma in comparative efficiency analysis for incentive regulation. It applies a distance function model with appropriate concavity properties for econometric estimation to a panel of electricity distribution utilities in Turkey, since electricity industry reform is a major policy issue there. The results confirm the importance of allowing simultaneously for heterogeneity and inefficiency and emphasise the need for specific time-invariant heterogeneity information, such as geographical data, on regulated utilities in different regions.efficiency and productivity analysis, regulation, electricity distribution.

Fuel subsidies versus market power : is there a countervailing second-best optimum?

Fuel subsidies distort end-use prices below cost, resulting in overconsumption and huge environmental cost. On the other hand, the mark-up over cost due to the exercise of market power results in the social loss of consumer surplus. We open a new line of inquiry into the potential for a market-based solution from these two countervailing forces: can the two offsetting distortions conceivably achieve a second- best optimum? Relying on dynamic panel techniques and gasoline market data for 68 developing countries, we uncover an excessive second-best subsidy offset to market power mark-up on the order of 4.5. Our results indicate that the potential for policy failure strongly exceeds the potential for market failure in our model, and gasoline prices across our sample may not be aligned with vigorous anti-climate change policy

Measuring competition using the Boone relative profit difference indicator

This paper suggests a method for implementing the theoretical relative profit difference test for intensity of competition due to Boone (2008). An empirical illustration is given for banking systems in emerging economies

Stochastic non-parametric efficiency measurement and yardstick competition in electricity regulation

Stochastic non-parametric efficiency measurement constructs production or cost frontiers that incorporate both inefficiency and stochastic error. This results in a closer envelopment of the mean performance of the companies in the sample and diminishes the effect of extreme outliers. This paper uses the Land, Lovell and Thore (1993) model incorporating information on the covariance structure of inputs and outputs to study efficiency across a panel of 14 electricity distribution companies in the UK during the 1990s. The purpose is to revisit the 1999 distribution price control review carried out by the UK regulator. The regulator’s benchmarking is contrasted with the stochastic nonparametric efficiency results and with other comparative efficiency models offering close envelopment of the data. Some conclusions are offered about the possible regulated price effects in the UK case

How a regulatory capital requirement affects banks' productivity: an application to emerging economies

© 2015, Springer Science+Business Media New York. This paper presents a novel approach to measure efficiency and productivity decomposition in the banking systems of emerging economies with a special focus on the role of equity capital. We model the requirement to hold levels of a fixed input, i.e. equity, above the long run equilibrium level or, alternatively, to achieve a target equity-asset ratio. To capture the effect of this under-leveraging, we allow the banking system to operate in an uneconomic region of the technology. Productivity decomposition is developed to include exogenous factors such as policy constraints. We use a panel data set of banks in emerging economies during the financial upheaval period of 2005–2008 to analyse these ideas. Results indicate the importance of the capital constraint in the decomposition of productivity

Productivity Growth of East Asia Economies' Manufacturing: A Decomposition Analysis

Applying a stochastic production frontier to sector-level data within manufacturing, this paper examines total factor productivity (TFP) growth for eight East Asian economies during 1963-1998, using both single country and cross-country regression. The analysis focuses on the trend of technological progress (TP) and technical efficiency change (TEC), and the role of productivity change in economic growth. The empirical results reveal that although input factor accumulation is still the main source for East Asian economies® growth, TFP growth is accounting for an increasing and important proportion of output growth, among which the improved TEC plays a crucial role in productivity growth.total factor productivity, technical efficiency change, technological progress, stochastic production frontier, East Asian economy

Efficiency analysis of maintenance and outage repair in electricity distribution

For several years electricity distribution companies have been using efficiency and productivity analysis in the form of data envelopment analysis and stochastic frontier analysis to analyse their operations. This reflects both market forces and responses to regulatory incentives. However we show that there is a significant difference in purpose and implementation between public regulatory benchmarking and internal company benchmarking. In this paper we use a variety of data envelopment analysis models to examine data on maintenance and outage repair on the electricity distribution system during 2004 -2005 in Portu­gal. In particular we examine the relationship between orientated and non-orientated models, and radial and non-radial analysis. We develop performance measures for the regional electricity networks operated in Portugal by EDP Distribuição, and we discover very close relationships among the performance rankings under different models, fulfilling widely-used consistency conditions for performance modeling. The paper uses the experience of this company example to draw some lessons about how performance measurement can be implemented within a company, in contrast to the usual objective of regulatory benchmarking procedures

A comparison of residential energy demand behaviour in Britain and Australia

This research highlights an interesting finding comparing energy use in the residential sector in the United Kingdom and Australia. Energy consumed per capita is largely similar, however the energy available is manifestly different. Australia is blessed with a greater abundance of energy than the United Kingdom. Particularly, in the main area of study in Australia, Victoria state, Brown coal is easy and cheap to access. It is therefore politically more difficult to argue that the population affords more expensive sustainable energy resources even though Australia is one of the countries that can readily produce this type of energy. Britain, however, is a net importer of energy. A large proportion of this energy is natural gas which is a fossil fuel, and therefore contributes to the negative effects of climate change. The findings of this research focus on what motivates residential users of energy to use energy more sustainably. It presents the conclusions of previous research as a backdrop, and reveals the complexity of occupant behaviour. Key drivers are financial incentives and the role of large organisations such as governments in influ-encing behaviour. This may take significant time