Incentive regulation: Evidence from German electricity networks

Michael Hellwig, Dominik Schober and Luis Cabral

No 18-010, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: We propose a difference-in-differences (DiD) approach to estimate the impact of incentives on cost reduction. We show theoretically, and estimate empirically, that German electricity distribution system operators (DSOs) pile up more costs in the year used to determine future prices when subject to a lower-powered regulation mechanism. The difference is particularly significant (about 10% of total cost) for firms in the upper quartile of the efficiency distribution, a pattern which is consistent with the pooling of types under the threat of ratcheting. In light of heterogeneous network reinforcement across DSOs due to local wind and solar power expansion, cost inflation will particularly hit already hard-struck DSOs’ customers.

Keywords: regulation; ratchet effect; electricity utilities; difference-in-differences; efficiency analysis (search for similar items in EconPapers)
JEL-codes: D24 D82 K23 L51 L94 L98 (search for similar items in EconPapers)
Date: 2019, Revised 2019
New Economics Papers: this item is included in nep-eff, nep-ene, nep-eur, nep-ind, nep-law and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Incentive Regulation: Evidence From German Electricity Networks (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:18010

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