Operational Performance of Electric Power Firms: Comparison between Japan and South Korea by Non-Radial Measures

Abstract

This study compares the electric power sectors between Japan and South (S) Korea. Both nations have been under a global trend of deregulation. To assess their progress due to industrial change and technology development, we use Data Envelopment Analysis (DEA) as an assessment tool that enables us to evaluate the level of simultaneous achievements on economic and technological measures, so assessing the degree of holistic development. DEA has been widely applied for performance assessment in the past decades. In this study, the method compares electric power firms by their operational efficiencies. To compare their achievements, it is necessary to develop a new type of DEA application for performance measurement. The proposed approach adds two analytical capabilities. First, the approach needs to handle “zero” in a data set and then restrict multipliers (i.e., weights among inputs and outputs) without any prior information to increase our empirical reliability. No study has simultaneously explored the two capabilities in DEA. Using the proposed method, our empirical study identifies two findings. One of the two is that the electric power industry of S. Korea outperformed that of the Japanese industry in the observed periods (2014–2018) because the Japanese power sector still suffered from an occurrence of the Fukushima Daiichi nuclear plant disaster which occurred on 1 March 2011. However, the difference has been gradually diminishing because the Japanese electricity industry has been gradually recovering from the huge disaster. The other is that the S. Korean power industry has been in a descending trend because the nation has shown technical regress as a result of inconsistent technology development (e.g., shifting its R&D: Research and Development) focus from electrical engineering to chemistry). The former R&D area is essential in maintaining the technical level of S. Korea′s electric power industry.