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
