Alternative Regulatory Methods And Firm Efficiency: Stochastic Frontier Evidence From The U.S. Electricity Industry

Christopher Knittel

The Review of Economics and Statistics, 2002, vol. 84, issue 3, 530-540

Abstract: The use of incentive regulation and other alternative regulatory programs in U.S. electricity markets has grown during the past two decades. Within a stochastic frontier framework, I investigate the effect of individual programs on the technical efficiency of a large set of coal and natural gas generation units. I find that those programs tied directly to generator performance and those that modify traditional fuel cost passthrough programs, to provide a greater incentive to reduce fuel costs, are associated with greater efficiency levels. Other programs have no statistical association with efficiency levels. © 2002 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology

Date: 2002
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