Efficiency effects of observed and unobserved heterogeneity: Evidence from Norwegian electricity distribution networks
Christian Growitsch (),
Tooraj Jamasb () and
Heike Wetzel ()
Energy Economics, 2012, vol. 34, issue 2, 542-548
Since the 1990s, efficiency and benchmarking analysis has increasingly been used in network utilities research and regulation. A recurrent concern is the effect of observable environmental factors that are beyond the influence of firms and unobserved factors that are not identifiable on measured cost and quality performance of firms. This paper analyses the effect of observed geographic and weather factors and unobserved heterogeneity on a set of 128 Norwegian electricity distribution utilities for the 2001–2004 period. We utilise data on 78 geographic and weather variables to identify real economic inefficiency while controlling for observed and unobserved heterogeneity. We use the Factor Analysis technique to reduce the number of environmental factors into few composite variables and to avoid the problem of multicollinearity. In order to identify firm-specific inefficiency, we then estimate a pooled version of the established stochastic frontier model of Aigner et al. (1977) and the recent true random effects model of Greene (2004; 2005a,b) without and with environmental variables. The results indicate that the observed environmental factors have a rather limited influence on the utilities' average efficiency and the efficiency rankings. Moreover, the difference between the average efficiency scores and the efficiency rankings among the pooled and the true random effects models imply that the type of SFA model used is highly influencing the efficiency estimates.
Keywords: Efficiency; Heterogeneity; Input distance function; Stochastic frontier analysis (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (32) Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
Working Paper: Efficiency effects of quality of service and environmental factors: experience from Norwegian electricity distribution (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:34:y:2012:i:2:p:542-548
Access Statistics for this article
Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant
More articles in Energy Economics from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().