The Dependence of Parametric Efficiency Tests on Measures of the Price of Capital and Capital Stock for Electric Utilities

Stephen C Farber

Journal of Industrial Economics, 1989, vol. 38, issue 2, 199-213

Abstract: This study tests whether various measures of the price of capital and capital stock will influence estimates of electric utility allocative efficiency. Parametric shadow values are estimated for fuel and capital prices, and these values are tested against the hypothesis they are equal to unity. The theoretically correct Jorgenson-type price for capital services results in rejecting the inefficiency hypothesis, while a more simplified version of this price does not reject the efficiency hypothesis. The exact measure of opportunity cost of capital, discounted cash flow or capital asset price, does not influence the efficiency conclusions. Copyright 1989 by Blackwell Publishing Ltd.

Date: 1989
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