Persistent and Transient Cost Efficiency – An Application to the Swiss Hydropower Sector

Thomas Geissmann (), Massimo Filippini and William Greene
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Thomas Geissmann: ETH Zurich, Switzerland

No 16/251, CER-ETH Economics working paper series from CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich

Abstract: Over the past few years, the price of electricity on the European market has decreased significantly and thereby the competitiveness and profitability of the Swiss hydropower firms has deteriorated. With one possibility to improve the sector’s competitiveness being an increase in the firms’ level of cost efficiency, the goal of this study is to quantify the firms’ level of persistent and transient cost efficiency using the generalized true random effects (GTRE) model introduced by Colombi et al. (2014) and Filippini and Greene (2015). Applying this newly developed GTRE model to a total cost function, the level of cost efficiency of 65 Swiss hydropower firms is analyzed for the period between 2000 and 2013. For comparison, a true random effects (TRE) specification is estimated alongside, serving as a benchmark for the transient level of cost efficiency. The results of the GTRE model show the presence of persistent as well as transient cost inefficiency. The existing level of persistent inefficiency could hinder the hydropower firms from reacting flexibly to new market environments.

Keywords: Efficiency measurement; stochastic frontier analysis; persistent and transient cost efficiency; hydropower (search for similar items in EconPapers)
JEL-codes: C01 C23 D23 L94 Q25 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2014-05
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Journal Article: Persistent and transient cost efficiency—an application to the Swiss hydropower sector (2018)
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