Using regulatory benchmarking techniques to set company performance targets: the case of US electricity

Paul Nillesen and Michael Pollitt

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

Abstract: Consolidation in many sectors has lead to the formation of “groups of companies”. Extracting all the potential cost savings from these independent or separate operating units is a challenge given asymmetric information. We develop a step-by-step approach that applies regulatory benchmarking techniques to set efficiency targets for operating units. Holding company management – like a regulator – will want to set targets to encourage efficient operation but in the absence of full information on effort, costs and environmental conditions. Our approach using the parallel with regulation incorporates issues such as measurement error and potential environmental factors that could influence the underlying efficiency score. We demonstrate the approach using data from the US electricity distribution sector and show that substantial savings can be extracted using this approach that was originally developed for regulatory purposes.

Keywords: benchmarking; regulation; operating companies; electricity distribution (search for similar items in EconPapers)
JEL-codes: L98 M21 (search for similar items in EconPapers)
Date: 2008-08
New Economics Papers: this item is included in nep-eff, nep-ene, nep-env and nep-reg
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Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Using Regulatory Benchmarking Techniques to Set Company Performance Targets: The Case of Us Electricity (2010)
Working Paper: Using regulatory benchmarking techniques to set company performance targets: the case of US electricity (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:0834

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