Specification of merger gains in the Norwegian electricity distribution industry

Antti Saastamoinen (), Endre Bjørndal () and Mette Bjørndal ()
Additional contact information
Antti Saastamoinen: VATT Institute for Economic Research, Postal: VATT Institute for Economic Research , P.O.Box 1279, FI-00101 Helsinki, Finland
Endre Bjørndal: Dept. of Business and Management Science, Norwegian School of Economics, Postal: NHH , Department of Business and Management Science, Helleveien 30, N-5045 Bergen, Norway
Mette Bjørndal: Dept. of Business and Management Science, Norwegian School of Economics, Postal: NHH , Department of Business and Management Science, Helleveien 30, N-5045 Bergen, Norway
Authors registered in the RePEc Author Service: Endre Jostein Bjørndal

No 2016/7, Discussion Papers from Norwegian School of Economics, Department of Business and Management Science

Abstract: Electricity distribution often exhibits economies of scale. In Norway, a number of smaller distribution system operators exist and thus there is potential to restructure the industry, possibly through mergers. However, the revenue cap regulatory model in Norway does not incentivize firms to merge as merging leads to a stricter revenue cap for the merged company. Thus the regulator compensates the firms in order to create such incentives. The amount of compensation is based on the potential gains of the merger estimated using a data envelopment analysis (DEA) based frontier approach introduced by Bogetoft and Wang (Journal of Productivity Analysis, 23, 145–171, 2005). DEA is however only one of many possible frontier estimators that can be used in estimation. Furthermore, the returns to scale assumption, the operating environment of firms and the presence of stochastic noise and outlier observations are all known to affect to the estimation of production technology. In this paper we explore how varying assumption under two alternate frontier estimators shape the distribution of merger gains within the Norwegian distribution industry. Our results reveal that the restructuring policies of the industry may be significantly altered depending how potential gains from the mergers are estimated.

Keywords: Mergers; efficiency estimation; electricity distribution; regulation (search for similar items in EconPapers)
JEL-codes: C60 L25 L43 L94 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2016-04-19
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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