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Regulatory Reform and Economic Performance in US Electricity Generation

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Abstract
In this paper we investigate the effect of the introduction of incentive regulation upon the total factor productivity (TFP) growth of electricity generation companies in the United States, using sample data on 61 firms observed over a 13-year period from 1986 to 1998. Empirical estimates of TFP growth are obtained using three techniques: Tornqvist index numbers, a stochastic cost frontier and a stochastic input distance function. The results obtained using the stochastic cost frontier are discarded because they are found to differ from those obtained using the other techniques, apparently as a consequence of violations of the required cost minimizing behavioral assumptions, which are not uncommon in regulated industries. Tests of hypotheses regarding the effect of regulatory reform upon TFP (using the distance function results) indicate that the introduction of incentive regulation has not had the desired positive effect upon the economic performance of the firms involved. In fact, in the case of these data, we find that performance is negatively related with the introduction of the new regulatory regimes, a result that is the opposite of the theoretical predictions.

Suggested Citation

  • Supawat Rungsuriyawiboon & Tim Coelli, 2004. "Regulatory Reform and Economic Performance in US Electricity Generation," CEPA Working Papers Series WP062004, School of Economics, University of Queensland, Australia.
    • Handle: RePEc:qld:uqcepa:11
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    File URL: https://economics.uq.edu.au/files/5334/WP062004.pdf
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    References listed on IDEAS

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    1. Rungsuriyawiboon, Supawat & Stefanou, Spiro E., 2007. "Dynamic Efficiency Estimation: An Application to U.S. Electric Utilities," Journal of Business & Economic Statistics, American Statistical Association, vol. 25, pages 226-238, April.
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    Cited by:

    1. Mirza, Faisal Mehmood & Mushtaq, Iqra & Ullah, Kafait, 2017. "Assessing the efficiency dynamics of post reforms electric distribution utilities in Pakistan," Utilities Policy, Elsevier, vol. 47(C), pages 18-28.
    2. Mattsson, Pontus, 2019. "The impact of labour subsidies on total factor productivity and profit per employee," Economic Analysis and Policy, Elsevier, vol. 62(C), pages 325-341.
    3. Tim Coelli & Gholamreza Hajargasht & C.A. Knox Lovell, 2008. "Econometric Estimation of an Input Distance Function in a System of Equations," CEPA Working Papers Series WP012008, School of Economics, University of Queensland, Australia.
    4. Li, Hong-Zhou & Tian, Xian-Liang & Zou, Tao, 2015. "Impact analysis of coal-electricity pricing linkage scheme in China based on stochastic frontier cost function," Applied Energy, Elsevier, vol. 151(C), pages 296-305.
    5. Christian Growitsch & Borge Hess, 2009. "On the sensitivity of US electric utilities' efficiency estimates - a distance function approach," Applied Economics Letters, Taylor & Francis Journals, vol. 16(8), pages 847-851.
    6. Mellah, Thuraya & Ben Amor, Tawfik, 2016. "Performance of the Tunisian Water Utility: An input-distance function approach," Utilities Policy, Elsevier, vol. 38(C), pages 18-32.

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