Quality of Service, Efficiency and Scale in Network Industries: An analysis of European electricity distribution

Christian Growitsch, Tooraj Jamasb and Michael Pollitt

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: Quality of service is of major economic significance in natural monopoly infrastructure industries but is generally not reflected in efficiency analysis. In this paper we present an efficiency analysis of electricity distribution networks using a sample of about 500 electricity distribution utilities from seven European countries. We apply the stochastic frontier analysis (SFA) method on multi-output translog input distance function models to estimate cost and scale efficiency with and without incorporating quality of service. We show that introducing the quality dimension into the analysis affects estimated efficiency significantly. In contrast to previous research, smaller utilities seem to indicate lower technical efficiency when incorporating quality. We also show that incorporating quality of service does not alter scale economy measures. Quality of service should be an integrated part of efficiency analysis and incentive regulation regimes, as well as in the economic review of market concentration in regulated natural monopolies.

Keywords: efficiency; quality of service; scale economies; input distance function; stochastic frontier analysis. (search for similar items in EconPapers)
JEL-codes: L15 L51 L94 (search for similar items in EconPapers)
Pages: 35
Date: 2005-09
New Economics Papers: this item is included in nep-com, nep-eff, nep-ene and nep-net
Note: EPRG 04
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Citations: View citations in EconPapers (10)

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Related works:
Journal Article: Quality of service, efficiency and scale in network industries: an analysis of European electricity distribution (2009)
Working Paper: Quality of Service, Efficiency and Scale in Network Industries: An analysis of European electricity distribution (2005)
Working Paper: Quality of Service, Efficiency, and Scale in Network Industries: An Analysis of European Electricity Distribution (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:0538

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