INCENTIVE REGULATION AND THE ROLE OF CONVEXITY IN BENCHMARKING ELECTRICITY DISTRIBUTION: ECONOMISTS VERSUS ENGINEERS

Emili GRIFELL-TATJÉ and Kristiaan KERSTENS

Annals of Public and Cooperative Economics, 2008, vol. 79, issue 2, pages 227-248

Abstract: This note illustrates the potential impact of the specification of a convex production technology on establishing minimal costs compared to the use of a non-convex technology when benchmarking electricity distributors. This methodological reflection is mainly motivated by recent engineering literature providing evidence for non-convexities in electricity distribution. An empirical illustration using non-parametric specifications of technology illustrates this main point using a sample of Spanish electricity distribution firms earlier analysed in Grifell-Tatjé and Lovell (2003). Copyright © 2008 The Authors Journal compilation © CIRIEC 2008.

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