Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/103411
Authors: 
Nick, Sebastian
Wetzel, Heike
Year of Publication: 
2014
Series/Report no.: 
EWI Working Paper 14/03
Abstract: 
In this study, we address a major problem in the measurement of firm performance and the regulation of natural monopolies, namely the intertemporal character of long-term investment decisions. In specific, we focus on the impact of adjustment costs of investments on estimates of firms' technical and cost inefficiency. We apply nonparametric dynamic data envelopment analysis to investigate the dynamic inefficiency of electricity distribution and transmission companies in the US during the years 2004 to 2011 and compare our results with their static counterparts. Our empirical findings reveal that ignoring long-term investments and their corresponding adjustment costs significantly distorts both firm-specific and industrial inefficiency estimates and may thus create misleading incentives for the regulated firms to cut investments.
Subjects: 
dynamic inefficiency
dynamic directional distance function
dynamic data envelopment analysis
electricity transmission and distribution
JEL: 
D22
D24
D61
D92
L51
Document Type: 
Working Paper

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