Bus transit technical efficiency using latent class stochastic indirect production frontier

Using an Indirect Production Frontier (IPF), this article examines technical inefficiency within a latent class framework while simultaneously accounting for allocative distortions from operating and capital subsidies. It identifies two latent classes of US public transit systems, one characterized by economies of scale with 16.61% technical inefficiency and the other by diseconomies of scale with 14.16% technical inefficiency. It decomposes technical inefficiency among some of its sources and finds that the incentive tier of federal operating subsidies, regulations regarding years of vehicle use, subsidy-induced allocative distortion from labour overuse relative to capital negatively influence technical inefficiency in all transit systems. For the Latent Class 1 transit systems, the sources of lower technical inefficiency are operating speed, purchased transportation and years-of-vehicle-use regulation. For the Latent Class 2 transit systems, these sources are subsidy-induced capital-labour allocative distortion and the incentive tier component of the federal formula grant.     

APPLICATION OF PANEL DATA MODELS IN BENCHMARKING ANALYSIS OF THE ELECTRICITY DISTRIBUTION SECTOR*

ABSTRACT ** : This paper explores the application of several panel data models in measuring productive efficiency of the electricity distribution sector. Stochastic Frontier Analysis has been used to estimate the cost‐efficiency of 59 distribution utilities operating over a nine‐year period in Switzerland. The estimated coefficients and inefficiency scores are compared across three different panel data models. The results indicate that individual efficiency estimates are sensitive to the econometric specification of unobserved firm‐specific heterogeneity. This paper shows that alternative panel models such as the ‘true’ random effects model proposed by Greene (2005) could be used to explore the possible impacts of unobserved firm‐specific factors on efficiency estimates. When these factors are specified as a separate stochastic term, the efficiency estimates are substantially higher suggesting that conventional models could confound efficiency differences with other unobserved variations among companies. On the other hand, refined specification of unobserved heterogeneity might lead to an underestimation of inefficiencies by mistaking potential persistent inefficiencies as external factors. Given that specification of inefficiency and heterogeneity relies on non‐testable assumptions, there is no conclusive evidence in favour of one or the other specification. However, this paper argues that alternative panel data models along with conventional estimators can be used to obtain approximate lower and upper bounds for companies' efficiency scores.     

Efficiency Measurement in Network Industries: Application to the Swiss Railway Companies

The persistence of increasingly high government subsidies in Switzerland’s railroads has led the federal and cantonal authorities to discussing the possibility of high-powered incentive contracts such as those based on cost efficiency benchmarking. Railways are however, characterized by a high degree of unobserved heterogeneity that could bias the efficiency estimates. This paper examines the performance of several panel data models to measure cost efficiency in network industries. The unobserved firm-specific effects and the resulting biases are studied through a comparative study of several stochastic frontier models, applied to a panel of 50 railway companies operating over a 13-year period.* The authors wish to thank Michael Crew and two anonymous referees for their helpful suggestions. Aurelio Fetz provided an excellent assistance, which is gratefully acknowledged. Any remaining errors are the responsibility of the authors.This revised version was published in June 2005 with corrections in the author affiliations.     

INCENTIVE REGULATION AND THE ROLE OF CONVEXITY IN BENCHMARKING ELECTRICITY DISTRIBUTION: ECONOMISTS VERSUS ENGINEERS

ABSTRACT ** :  This note illustrates the potential impact of the specification of a convex production technology on establishing minimal costs compared to the use of a non-convex technology when benchmarking electricity distributors. This methodological reflection is mainly motivated by recent engineering literature providing evidence for non-convexities in electricity distribution. An empirical illustration using non-parametric specifications of technology illustrates this main point using a sample of Spanish electricity distribution firms earlier analysed in Grifell-Tatjé and Lovell (2003) .     

Efficiency analysis of German electricity distribution utilities – non-parametric and parametric tests

This study applies non-parametric and parametric tests to assess the efficiency of electricity distribution companies in Germany. Traditional issues in electricity sector benchmarking are addressed, such as the role of scale effects and optimal utility size, as well as new evidence specific to the situation in Germany. Labour, capital, and peak load capacity are used as inputs, and units sold and the number of customers as output. The data cover 307 (out of 553) German electricity distribution utilities. A data envelopment analysis (DEA) is applied with constant returns to scale (CRS) as the main productivity analysis technique, whereas stochastic frontier analysis (SFA) with distance function is the verification method. The results suggest that returns to scale play but a minor role; only very small utilities have a significant cost advantage. Low customer density is found to affect the efficiency score significantly, in particular in the lower third of all observations. Surprisingly, East German utilities feature a higher average efficiency than their West German counterparts. The correlation tests imply a high coherence of the results.     

Efficiency measurement using a latent class stochastic frontier model

Efficiency estimation in stochastic frontier models typically assumes that the underlying production technology is the same for all firms. There might, however, be unobserved differences in technologies that might be inappropriately labeled as inefficiency if such variations in technology are not taken into account. We address this issue by estimating a latent class stochastic frontier model in a panel data framework. An application of the model is presented using Spanish banking data. Our results show that bank-heterogeneity can be fully controlled when a model with four classes is estimated. This paper was written during Luis Oreas visit to Binghamton University in the summer of 2002. We would like to thank an associate editor of the journal and two anonymous referees for their detailed comments. However, we alone are responsible for any remaining errors.     

强自然垄断定价理论与中国电价规制制度分析

强自然垄断行业由于其定价方面的两难困境 ,需要规制者对其产品定价进行规制以在厂商利润与社会福利之间进行权衡。边际成本定价原则并不适合于自然垄断厂商。本文在规制定价理论以及激励规制理论的基础上 ,对中国电力定价问题进行了分析 ,认为电价改革的第一步应在发电环节中引入竞争的基础上 ,对不同效率类型的电力厂商设计不同激励强度的定价机制 ,另外本文尝试着对不同技术效率的电力厂商列出了不同激励强度的价格规制方案菜单     

ECONOMIES OF SCALE AND SCOPE IN POSTAL OUTLETS UNDER CONSIDERATION OF UNOBSERVED HETEROGENEITY

ABSTRACT: We analyze economies of scale and scope in Swiss Post's post offices and franchised postal agencies under consideration of different underlying production technologies and unobserved factors using a latent class model. The results confirm the existence of unobserved heterogeneity and of increasing economies of scale and scope in the Swiss Post's outlet network.     

Incentive regulation,service quality,and standards in U.S. electricity distribution

The widespread use of incentive regulation in telecom, electricity, and other industries in the U.S. and elsewhere has raised questions about its possible adverse effect on the quality of service. This paper examines U.S. electricity distribution utilities in the years 1993–1999, several of which were subject to incentive regulation. Controlling for other possible influences, including possible endogeneity of the regulatory regime, the data and model indicate that incentive regulation is indeed associated with significantly longer duration of service outages, although not necessarily more frequent outages. Importantly, this quality reduction is offset in cases where regulation incorporates service quality standards. We also examine the causal chain connecting incentive regulation, cost expenditures, and service quality. We conclude that careful design of quality standards can allow incentive regulation to achieve cost savings without quality degradation.     

异质性环境规制、清洁型技术结构与区域工业环境效率提升

构建并演绎异质性环境规制、清洁型技术结构与工业环境效率之间的作用机制,测算我国及各省份清洁、非清洁技术效率和工业环境效率,实证检验不同类型环境规制通过清洁型技术结构对工业环境效率形成的直接效应、中介效应和门限效应。研究发现:各地区清洁、非清洁技术效率和工业环境效率一直呈上升趋势,且东部均高于中、西部地区。惩罚性环境规制和奖励性环境规制对工业环境效率的直接效应具有显著的正向影响,前者明显大于后者,但前者的作用力度逐渐减弱,后者的作用力度逐渐增强。二者均存在可持续两期的部分中介效应。惩罚性和奖励性环境规制分别呈现双重和三重门限效应,大部分省份的环境规制已突破U型门槛下限,正向作用于工业环境效率。     

Decoupling in electric utilities

Distributing electricity to users has been covered through the charge per kilowatt-hour for electricity used. Conservation advocates have promoted policies that “decouple” distribution revenues or profits from the amount of electricity delivered, claiming that usage-based pricing leads utilities to encourage use and discourage conservation. Because decoupling separates profits from conduct, it runs against the dominant finding in regulatory economics in the last 20 years—that incentive-based regulation outperforms rate-of-return profit guarantees. Even if distribution costs are independent of use, some usage charges can be efficient. Price-cap regulation may distort incentives to inform consumers about energy efficiency—getting more performance from less electricity. Utilities will subsidize efficiency investments, but only when prices are too low. If consumers fail to adopt energy efficiency measures that would be individually beneficial, decoupling can increase welfare, but only if all energy revenues are separated from use, not just those associated with distribution.     

A comparison of stochastic frontier approaches for estimating technical inefficiency and total factor productivity

This article compares standard stochastic frontier models for panel data with a number of recently developed models which attempt to control for unobserved heterogeneity in the inefficiency component. Results are used to construct a generalized Malmquist Total Factor Productivity (TFP) index for the Irish tillage sector. While our application yields similar general TFP trends across models, it is evident that this new class of model leads to fewer theoretical inconsistencies in the production frontier. Furthermore, inefficiency estimates across models are critically compared and the potential benefits of controlling for unobserved heterogeneity are highlighted.     

基于三阶段Malmquist-PNN的区域绿色创新效率评价与智能诊断研究

采用三阶段Malmquist指数构建了排除外部环境与随机干扰因素的八大综合经济区绿色创新效率测度模型，并结合概率神经网络对绿色创新效率进行了智能诊断。研究发现：①绿色创新效率总体呈“下降-上升-下降-上升”波动趋势，其中，西南地区属于共同推动型，其余地区为技术进步型。绿色创新效率主要由技术进步决定，技术效率起抑制作用，而技术效率低下是由规模效率下降所致；②在剔除外部环境与随机因素干扰后，各区域Malmquist指数均有所下降，在第一阶段中绿色创新效率被高估，究其原因是技术效率被高估。其中，西北和黄河中游地区排名与第一阶段结果差别较大，其余地区排名保持不变；③加快发展技术市场和优化产业结构有助于绿色创新效率提升，而经济发展水平、经济开放程度和环境规制对绿色创新效率的影响不显著；④根据智能诊断结果，可将区域分为全部效率有效地区、纯技术无效地区和规模无效地区三类。     

基于三阶段Malmquist-PNN的区域绿色创新效率评价与智能诊断研究

采用三阶段Malmquist指数构建了排除外部环境与随机干扰因素的八大综合经济区绿色创新效率测度模型，并结合概率神经网络对绿色创新效率进行了智能诊断。研究发现：①绿色创新效率总体呈“下降-上升-下降-上升”波动趋势，其中，西南地区属于共同推动型，其余地区为技术进步型。绿色创新效率主要由技术进步决定，技术效率起抑制作用，而技术效率低下是由规模效率下降所致；②在剔除外部环境与随机因素干扰后，各区域Malmquist指数均有所下降，在第一阶段中绿色创新效率被高估，究其原因是技术效率被高估。其中，西北和黄河中游地区排名与第一阶段结果差别较大，其余地区排名保持不变；③加快发展技术市场和优化产业结构有助于绿色创新效率提升，而经济发展水平、经济开放程度和环境规制对绿色创新效率的影响不显著；④根据智能诊断结果，可将区域分为全部效率有效地区、纯技术无效地区和规模无效地区三类。     

Idiosyncratic risk and the cost of capital: the case of electricity networks

We analyze the treatment and impact of idiosyncratic or firm-specific risk in regulation. Regulatory authorities regularly ignore firm-specific characteristics, such as size or asset ages, implying different risk exposure in incentive regulation. In contrast, it is common to apply only a single benchmark, the weighted average cost of capital, uniformly to all firms. This will lead to implicit discrimination. We combine models of firm-specific risk, liquidity management and regulatory rate setting to investigate impacts on capital costs. We focus on the example of the impact of component failures for electricity network operators. In a simulation model for Germany, we find that capital costs increase by \(\sim \) 0.2 to 3.0 % points depending on the size of the firm (in the range of 3–40 % of total cost of capital). Regulation of monopolistic bottlenecks should take these risks into account to avoid implicit discrimination.     

Estimation of Dynamic Panel Data Sample Selection Models

This paper considers the problem of identification and estimation in panel data sample selection models with a binary selection rule, when the latent equations contain strictly exogenous variables, lags of the dependent variables, and unobserved individual effects. We derive a set of conditional moment restrictions which are then exploited to construct two-step GMM-type estimators for the parameters of the main equation. In the first step, the unknown parameters of the selection equation are consistently estimated. In the second step, these estimates are used to construct kernel weights in a manner such that the weight that any two-period individual observation receives in the estimation varies inversely with the relative magnitude of the sample selection effect in the two periods. Under appropriate assumptions, these "kernel-weighted" GMM estimators are consistent and asymptotically normal. The finite sample properties of the proposed estimators are investigated in a small Monte-Carlo study.     

Regulatory design and technical efficiency: public transport in France

The provision of local public transport in France involves private and public firms and the use of incentive contracts to regulate them. We study the effect of these institutional features on the sector’s efficiency using a long panel data of firms, with a two-stage estimation procedure. First, we use nonparametric data envelopment analysis techniques to estimate input usage efficiency, following a conditional approach that controls for differences in the environments in which the firms operate. Second, we estimate semiparametric censored regressions, using fixed effects to control for unobserved sources of heterogeneity. Our results point to a differential effect of private and mixed public-private companies. In particular, having the performance of public operators as the benchmark, efficiency is relatively higher for private firms, but lower when the service is delegated to a mixed public-private firm. In the latter case, the effects diverge by contract type: when the contract is of the cost reimbursement type, performance is lower than the public firm benchmark, while for other contract types, there are no statistically significant differences.     

The Managers versus the Consultants*

Since engineering information is rarely available, standard practice is to benchmark managerial performance against best observed practice. We exploit a rare opportunity to benchmark managerial performance against engineering standards. Our managerial performance describes the activities of Spanish electricity distributors, and our engineering standards are obtained from an engineering grid created by an international consultancy. We find the consultancy's network to be much less costly to operate. When we decompose the cost differential, we find that the superior network design, combined with lower input prices, accounts for more than all of the predicted cost savings. However we also find that the managers are more cost efficient than the consultancy, presumably because they exploit their incentive to be cost efficient under a revenue cap regulatory regime.     

Implications of Regulation Policy Incentives for Strategic Control: An Integrative Model

Abstract ** : This paper proposes an internal management perspective of the company, as a complement to longstanding principal‐agency theory, for understanding the interchange between regulator and company. It draws from a longitudinal research project on understanding the implications of regulation policy incentives for strategic control in the management of UK monopoly network utilities and the management implications of regulatory policy making. This paper reports on how two utility companies have managed regulatory objectives alongside organizational ones in electricity distribution and gas transportation and suggests a new integrative model of strategic control for understanding utility management. It concludes if regulation policies are to be effective then regulators should understand the internal management of the companies if performance targets are to be attained .     

Electricity wheeling and incentive regulation

This paper relates social contract regulation strategies to a particularly important comtemporary issue in energy regulation—electricity wheeling; we find that substantial gains in economic efficiency may be possible. First, social contracts give potential wheelers more monetary incentive than traditional regulatory procedures to provide wheeling services to interested third parties. Second, social contract regulation gives potential wheelers better incentives to measure marginal costs accurately. Third, under social contract regulation, wheelers have proper incentives to install efficient amounts of transmission capacity, thereby avoiding Averch-Johnson and other regulatory distortions that emerge in traditional regulation.