Abstract
AbstractCompetition usually increases firm productivity; but in network industries, effective competition requires vertical separation, which might reduce productivity and lead to a potential trade-off. We analyze the combined effect of competition and vertical separation on inefficient costs for US electricity industry restructuring. We estimate firm-level inefficiencies with the use of different nonparametric models of the technology and calculate net benefits with the use of difference-in-differences. The results depend on how we model the production technology and the length of the post-treatment horizon. The more flexible is the production frontier, the greater is the net benefit from divestiture and competition. Across our models the combined effect of divestiture and competition is positive.
Publisher
Springer Science and Business Media LLC
Reference35 articles.
1. Aigner, D., Lovell, C. A. K., & Schmidt, P. (1977). Formulation and estimation of stochastic frontier production function models. Journal of Econometrics, 6(1), 21–37.
2. Arocena, P., Saal, D. S., and Coelli, T. (2012). Vertical and Horizontal Scope Economies in the Regulated U.S. Electric Power Industry. The Journal of Industrial Economics, 60(3):434–467.
3. Banker, R., Charnes, A., & Cooper, W. (1984). Some Models for Estimating Technical and Scale Efficiencies in DEA. Management Science, 30, 1078–1092.
4. Brooke, A., Kendrick, D., & Meeraus, A. (1988). GAMS: A user’s guide. California, The Scientific Press., 821, 505–528.
5. Bushnell, J. B. and Wolfram, C. D. (2005). Ownership change, incentives and plant efficiency: The divestiture of US electric generation plants. Center for the Study of Energy Markets Paper CSEMWP-140.