|
on Efficiency and Productivity |
|
Issue of 2018‒10‒15
thirty-six papers chosen by |
| By: | Germà Bel (Department of Econometrics, Statistics and Applied Economics & GiM-IREA University of Barcelona. C/ John Keynes 1-11, 08034 Barcelona. Tel: 34.93.4031131 Fax: 34.93.4024573); Marc Esteve (University College London & ESADE.) |
| Abstract: | The question of whether private organisations can outperform public ones in public service delivery has been a major topic of interest over the last few decades. However, empirical evidence does not systematically support the hypothesis of lower costs and higher efficiency when private organisations deliver public services. To better understand the cost and efficiency differences of public and private organisations, we conduct a metaregression analysis of econometric studies relating to hospital ownership and performance. We analyse 61 estimations extracted from health studies using public versus private hospital costs and efficiency as an independent variable. Our analysis shows a genuine true effect in favour of public sector hospitals. We found evidence that public production of health services may be cheaper if this is provided by the public sector. However, the results show that when technical efficiency is considered, the private sector performs better than the public counterpart. And the opposite happens when instead of considering technical efficiency we consider financial costs. We discuss how the divergence in the results is affected by factors such as country, year, use of panel data in the study, whether performance is measured by examining financial costs, or if the study considers not-for-profit hospitals, among others. |
| Keywords: | Privatization, transaction costs, government regulation, meta- regression analysis JEL classification:L32, L33 I18 |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:ira:wpaper:201824&r=eff |
| By: | Kounetas, Kostas; Napolitano, Oreste; Stavropoulos, Spyridon; Burger, Martijn |
| Abstract: | Assessing regional convergence is an important issue both at the national and at the supranational level, such as the level of European regions. Regional convergence and productivity growth are also principles of the European regional policy. This paper studies regional productivity convergence among 232 NUTS-2 European regions for the period 2003-2011. Despite the European regional policies implemented in the last two decades, the technology gap between European regions has only increased. The objective of this paper is to provide new evidence on production efficiency and the technology gap in European regions. We present a two-stage model of regional productive performance using a meta-frontier framework and a PVAR analysis. The main conclusion is that there exist significant differences in productive performance that confirm the North-South division in Europe. Finally, the results from the PVAR model provide robust evidence for the role played by human capital and innovation activity through patent realization in the technology gaps at the regional level in Europe. |
| Keywords: | Metafrontier, DEA bootstrap, PVAR, Spillovers, European Regions. |
| JEL: | C15 D24 O47 R11 |
| Date: | 2018–01–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:88957&r=eff |
| By: | Florian Ploeckl (University of Adelaide) |
| Abstract: | "Public monopolies operate with substantial regional differences in their efficiency. This paper uses the Reichspost, the German Imperial Postal Service, to investigate what factors explain these differences. Additionally scale effects and the comparative efficiency on input and output side are investigated." |
| Keywords: | "Productivity, Public Service, Postal Service, Germany" |
| JEL: | D24 N73 N93 |
| Date: | 2017–04 |
| URL: | http://d.repec.org/n?u=RePEc:ehs:wpaper:17013&r=eff |
| By: | Santos, Eleonora |
| Abstract: | The lack of a database that integrates a significant number of the variables necessary to empirically investigate the existence of externalities from FDI in Portugal represents an important limitation in this area. This paper presents a new balanced panel dataset with a total of 5,045 manufacturing firms (domestic and foreign) for the period 1995-2007. We use multiple imputation in Stata 13.0 to construct a large dataset containing several indicators taken from AMADEUS, Quadros do Pessoal, EU Klems and OCDE databases, that allow us to congregate variables that measure three dimensions: total factor productivity; foreign presence and factors that may influence the productivity of domestic firms, such as indicators of firm efficiency and R&D activities. Our panel dataset provides a set of useful 15 indicators for the analysis of externalities from FDI in 4,685 domestic manufacturing firms. We perform correlation analysis by technological groups based on Pavitt’s Taxonomy. Results indicate that the foreign presence is positively and significantly correlated with the TFP growth. Moreover, the sign and magnitude of the coefficients for the control variables indicate that concentration, the stock of foreign knowledge and the technological gap potentially assist the TFP growth of domestic firms, but only in some technological groups. |
| Keywords: | firm-level data, productivity, FDI Externalities, Portugal |
| JEL: | F23 O30 |
| Date: | 2017–09–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:88959&r=eff |
| By: | Steffen Elstner; Lars P. Feld; Christoph M. Schmidt |
| Abstract: | Despite massive digitization efforts, the German economy has experienced a marked slowdown in its productivity growth. This paper analyzes the reasons behind this disconcerting development. A major factor is the turnaround of the labor market that commenced around 2005. The successful integration of five million predominantly low-productivity workers into the labor market induced an attenuating effect on productivity growth. This does not explain the slowdown entirely, however. As a potentially important countervailing force, technological advances associated with digitization would have had the potential to lift productivity growth more strongly, but they frequently translated into employment growth instead. |
| Keywords: | labor productivity, labor markets, technology shocks, digitalization, structural VARs |
| JEL: | O40 E24 C32 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7231&r=eff |
| By: | Subhash C. Ray (University of Connecticut); Abhiman Das (Indian Institute of Management); Kankana Mukherjee (Babson College) |
| Abstract: | In this paper, we propose a representation of the production technology in the form of a cost set in the output and expenditure space as an alternative to the standard free disposal convex hull of input-output vectors. We show that when all units pay the same input prices, one can construct a free disposal convex hull of outputs and total expenditures to solve the cost minimization problem. We use the proposed model to evaluate the labor use efficiency of a sample of 325 branches of a major Indian public sector bank from four metropolitan cities across two years, 2008 and 2014. This is the first study in the Indian banking context to model the operations of branches using the production approach. Our empirical findings indicate that there is significant inefficiency in labor use in the branches and cost could be curtailed substantially by addressing overstaffing. Across the three types of labor, reducing the expenditure of clerks would have the highest impact for cost saving. We do find, however, that that the extent of overspending on clerks has reduced in 2014, which apparently is a direct consequence of computerization of routine jobs. Efficiency varies across regions. In general, Chennai branches are more efficient than branches from other regions whereas Kolkata branches are the least efficient. |
| Keywords: | Data envelopment analysis; Cost set; Group and industry frontiers; Indian bank branches; Labor use efficiency |
| JEL: | G21 C61 |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:uct:uconnp:2018-17&r=eff |
| By: | Macharia, Anthony Mwangi; Carpio, E Carlos; Kirimi, Lilian |
| Keywords: | Production Economics |
| Date: | 2018–01–17 |
| URL: | http://d.repec.org/n?u=RePEc:ags:saea18:266688&r=eff |
| By: | Hadush, Muuz |
| Abstract: | In this paper, efforts were made to assess the impact of full and seasonal stall feedingtechnology on households’ milk production and consumption, market participation (animal and animal product sale) in Northern Ethiopia using data obtained from the survey of 518 rural farmers. The overall result indicated that SF adoption ensures significant gains in terms of the specified outcome indicators. Using endogenous switching regression models, we estimate different outcome indicators for both adopters from adoption (ATT), and non-adopters had they adopted (ATU). It is identified that there would be a decline of 21% in milk production and productivity if adopters would not have adopted this technology while nonadopters are estimated to increase their milk production and productivity by 100% and 48% if they would adopt this technology. The results further show that SF adoption had a significant increment in lactation period. An increase of consumption expenditure by 17% from FSF and 44% in the case of SSF could be considered significant on livelihoods for smallholder farmers. The adoption of SF increased the likelihood of participating in an animal sale market by 29% for adopters and by 47% for non-adopters had they decided to adopt. |
| Keywords: | Consumer/Household Economics, Land Economics/Use, Production Economics |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ags:iafepa:276473&r=eff |
| By: | Polemis, Michael; Stengos, Thanasis; Tzeremes, Nickolaos |
| Abstract: | The study applies the probabilistic framework of nonparametric frontier estimation in order to model the effect of competitive conditions on sectors’ production efficiency levels. We utilize conditional Order-m robust frontiers modeling the dynamic effects of competitive conditions on a sample of 462 U.S. 6-digit manufacturing sectors over the period 1958-2009. The results derived from the time-dependent robust conditional estimators unveil a non-linear relationship between market competition and productive efficiency. Our findings suggest that for higher competitive conditions the effect is positive up to a certain threshold point after which the effect becomes negative. |
| Keywords: | Probabilistic frontier analysis; Conditional efficiency; Order-m estimators; U.S. manufacturing; Competition. |
| JEL: | C14 L60 O14 |
| Date: | 2018–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:89240&r=eff |
| By: | Mark Andor (RWI – Leibniz Institute for Economic Research); Christopher F. Parmeter (University of Miami); Stephan Sommer (RWI – Leibniz Institute for Economic Research) |
| Abstract: | Data envelopment analysis (DEA) and stochastic frontier analysis (SFA), as well as combinations thereof, are widely applied in incentive regulation practice, where the assessment of efficiency plays a major role in regulation design and benchmarking. Using a Monte Carlo simulation experiment, this paper compares the performance of six alternative methods commonly applied by regulators. Our results demonstrate that combination approaches, such as taking the maximum or the mean over DEA and SFA efficiency scores, have certain practical merits and might offer an useful alternative to strict reliance on a singular method. In particular, the results highlight that taking the maximum not only minimizes the risk of underestimation, but can also improve the precision of efficiency estimation. Based on our results, we give recommendations for the estimation of individual efficiencies for regulation purposes and beyond. |
| Keywords: | Data Envelopment Analysis; Stochastic Frontier Analysis; Efficiency Analysis; Regulation; Network Operators Publication Status: Forthcoming |
| JEL: | C10 C50 D24 L50 |
| Date: | 2018–09–29 |
| URL: | http://d.repec.org/n?u=RePEc:mia:wpaper:2018-02&r=eff |
| By: | Saavoss, Monica |
| Keywords: | Crop Production/Industries |
| Date: | 2018–01–17 |
| URL: | http://d.repec.org/n?u=RePEc:ags:saea18:266586&r=eff |
| By: | Haoyuan Liu (McCombs School of Business, University of Texas at Austin, 2110 Speedway Stop B6500, Austin, TX 78712); Wen Wen (McCombs School of Business, University of Texas at Austin, 2110 Speedway Stop B6500, Austin, TX 78712); Andrew B. Whinston (McCombs School of Business, University of Texas at Austin, 2110 Speedway Stop B6500, Austin, TX 78712) |
| Abstract: | We study how the broadcasting of peer success on an enterprise digital platform affects worker productivity. Using sales workers in an IT service company as our research context, we leverage the unexpected resignation of several HR staff members as an exogenous shock to the sharing of peer success and implement a difference-in-differences estimation. The empirical evidence shows that sales workers exert less effort when peer success messages are absent. We next investigate how the framing of peer success messages may generate different forms of peer influence, and particularly explore two ways of framing—messages that highlight peer’s ability (i.e., ability-based messages) and messages that highlight peer’s effort (i.e., effort-based messages). We find that although both types of peer success messages have a positive influence on worker productivity, there exists important heterogeneity. For ability-based messages, workers respond most strongly if their peers are socially close or have worse historical performance. By contrast, the effect of effort-based messages does not vary by peer characteristics. |
| Keywords: | peer success, work effort, productivity, peer influence, online organizational communication, peer pressure, difference-in-differences |
| JEL: | J24 L86 M54 |
| Date: | 2018–09 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:1808&r=eff |
| By: | Shee, Apurba; Pervez, Shadayen; Turvey, Calum G. |
| Keywords: | International Development, Ag Finance and Farm Management, Production Economics |
| Date: | 2018–06–20 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea18:274224&r=eff |
| By: | Esteban Rossi-Hansberg; Pierre-Daniel Sarte; Nicholas Trachter |
| Abstract: | The views expressed herein are those of the authors and do not necessarily represent the views of the Federal Reserve Bank of Richmond or the Federal Reserve System. We thank Eric LaRose and Sara Ho for outstanding research assistance.Using U.S. NETS data, we present evidence that the positive trend observed in national product-market concentration between 1990 and 2014 becomes a negative trend when we focus on measures of local concentration. We document diverging trends for several geographic definitions of local markets. SIC 8 industries with diverging trends are pervasive across sectors. In these industries, top firms have contributed to the amplification of both trends. When a top firm opens a plant, local concentration declines and remains lower for at least 7 years. Our findings, therefore, reconcile the increasing national role of large firms with falling local concentration, and a likely more competitive local environment. |
| JEL: | E23 L11 R12 |
| Date: | 2018–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25066&r=eff |
| By: | Ouaida, Fadila; El Hajjar, Samer |
| Abstract: | The benefits of e-commerce are apparent not only for small and medium enterprises (SMEs) and large firms, but also for micro firms. Hence, implementing e-sales for micro firms is worth exploring. This study examines the relationship between the use of e-commerce and productivity implications on micro firms in France using Propensity Score Matching (PSM) for the year 2012. Data used in the analysis is based on community survey "ICT & e-commerce" for micro firms. The main objective of using PSM is to assess productivity between, on the one hand, e-selling micro firms and, on the other hand, the non e-selling micro firms. The empirical results show that e-selling micro firms are more productive and have a higher turnover in 2012. |
| Keywords: | ICT,E-commerce,micro firms,productivity,Propensity Score Matching |
| JEL: | L81 O30 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:201866&r=eff |
| By: | Balana, Bedru; Bizimana, Jean-Claude; Richardson, James W.; Lefore, Nicole; Adimassu, Zenebe; Herbst, Brian K. |
| Abstract: | Small-scale irrigation (SSI) technologies can be a useful tool not only to increase crop productivity and income but also to mitigate against climate variability in Ghana given the recent frequent dry spells. Profitability and economic feasibility of investing in the SSI technologies are analysed using a farm simulation model (FARMSIM) and based on farm-plot level data on selected SSI technologies piloted in northern Ghana under the Innovation Lab for Small Scale Irrigation (ILSSI). The aim is to identify profitable and economically feasible sets of ‘crop type–SSI technology’ combinations that would prove viable in “real world” farm conditions. Four dry season irrigated cash crop (corchorus, onion, and amaranths) grown under four SSI technologies (pump-tank-hose, watering can, and rain/roof water harvesting and drip irrigation) were considered. Results showed that rainwater-harvesting using poly tank storage and a drip system is not economically feasible at the current yield level and market prices of irrigated cash crops in northern Ghana. SSI technology options using river water or shallow wells with motorized pumps or watering cans were profitable. The watering can is relatively more profitable than motorized pumps because of fuel and upfront investment costs in pumps. However, affordable credit schemes could mitigate the cost constraint to afford motor pumps and enable smallholders to participate in market-oriented production. |
| Date: | 2018–01–16 |
| URL: | http://d.repec.org/n?u=RePEc:ags:saea18:266558&r=eff |
| By: | Padilla, Samantha; Liverpool-Tasie, Lenis S. |
| Keywords: | Agribusiness Economics and Management, Ag Finance and Farm Management, Risk and Uncertainty |
| Date: | 2018–06–20 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea18:273770&r=eff |
| By: | Micheels, Eric T.; Paulson, Nick; Skolrud, Tristan D. |
| Keywords: | Agribusiness Economics and Management, Ag Finance and Farm Management, Production Economics |
| Date: | 2018–06–20 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea18:273777&r=eff |
| By: | Wang, Yang; Dong, Fengxia; Xu, Jiabin |
| Keywords: | Production Economics, Productivity Analysis and Emerging Technologies, Rural/Community Development |
| Date: | 2018–06–20 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea18:274344&r=eff |
| By: | Cheptea, Angela; Laroche-Dupraz, Cathie |
| Keywords: | Productivity Analysis and Emerging Technologies, International Trade, Resource and Environmental Policy Analysis |
| Date: | 2018–06–20 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea18:274386&r=eff |
| By: | Ma, Wanglin; Renwick, Alan; Bicknell, Kathryn |
| Keywords: | Research Methods/Econometrics/Stats, Agribusiness Economics and Management, Production Economics |
| Date: | 2018–06–20 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea18:274394&r=eff |
| By: | Soliman, Tarek; Djanibekov, Utkur |
| Keywords: | Productivity Analysis and Emerging Technologies, Production Economics, Resource and Environmental Policy Analysis |
| Date: | 2018–06–20 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea18:274374&r=eff |
| By: | Ramsey, Austin F.; Wang, Huaiyu |
| Keywords: | Productivity Analysis and Emerging Technologies, Research Methods/Econometrics/Stats, International Development |
| Date: | 2018–06–20 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea18:274375&r=eff |
| By: | Raffaella Santolini (Dipartimento di Scienze Economiche e Sociali - UNIVPM) |
| Abstract: | Little attention has been paid to the spatial pattern in local governments' efficiency. This paper intends to fill this gap by conducting an empirical analysis on a sample of 246 Italian municipalities over the decade 1998-2008. The efficiency of the municipal government is measured in terms of the speed of payments for different categories of public spending. Estimation results reveal the presence of spatial interdependence in the speed of payments among the geographically close municipalities, with a greater magnitude for the speed of current outlays. Thus, municipalities mimic the speed with which public spending is carried out by their neighbors. |
| Keywords: | the speed of payments, neighborhood effects, spatial econometrics, Italian municipalities |
| JEL: | C23 H72 H73 |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:anc:wpaper:432&r=eff |
| By: | Foltz, Jeremy D.; Traore, Nouhoum |
| Keywords: | Resource and Environmental Policy Analysis, Productivity Analysis and Emerging Technologies, International Trade |
| Date: | 2018–06–20 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea18:274434&r=eff |
| By: | Yao, Becatien H.; Shanoyan, Aleksan |
| Keywords: | International Development, Ag Finance and Farm Management, Productivity Analysis and Emerging Technologies |
| Date: | 2018–06–20 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea18:274225&r=eff |
| By: | Anwar Shaikh (Department of Economics, New School for Social Research); Luiza Nassif (Department of Economics, New School for Social Research) |
| Abstract: | Brody (1997), while experimenting with random matrices, conjectured that the relative size of the second eigenvalue with respect to the first tended to fall as a random matrix got larger. Bidard and Schatteman (2001) proved that in a random matrix with independently and identically distributed entries the speed of convergence increases with the size of the matrix because the relative size of all subdominant eigenvalues tends to zero as the matrix size approaches infinity. Schefold (2010) then showed that zero subdominant eigenvalues imply linear wage-profit curves for any given numeraire. Our concern is with actual input-output matrices. We successively aggregate the US 2002 matrix from 403 to 10 industries and observe the distribution of the moduli of eigenvalues at each level of aggregation. The random matrix hypothesis predicts that both the size of ratio of the modulus of second eigenvalue to the first and the average size of all moduli will fall toward zero as matrix size increases. At an empirical level, we find that the eigenvalue ratio rises while the average size of eigenvalue moduli falls towards a positive constant. These findings do not support the applicability of Brody’s conjecture for real input-output tables, and by implication do not support the hypothesis that wage-profit curves will become strictly linear in the limit. It is still possible to reconcile our findings with empirically observed near-linear wage-profit curves. |
| Keywords: | Input-output, wage-profit curves, eigenvalues, aggregate production function |
| JEL: | B51 C67 D46 D57 E11 |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:new:wpaper:1812&r=eff |
| By: | Vaiknoras, Kate A.; Larochelle, Catherine |
| Keywords: | International Development, Productivity Analysis and Emerging Technologies, Food and Agricultural Policy Analysis |
| Date: | 2018–06–20 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea18:274231&r=eff |
| By: | Michael Pammer (Johannes Kepler University) |
| Keywords: | "agriculture, productivity, distribution, inequality, Austria, 19th century, regional comparison" |
| JEL: | N53 N93 |
| Date: | 2017–04 |
| URL: | http://d.repec.org/n?u=RePEc:ehs:wpaper:17006&r=eff |
| By: | Danelon, André F.; Spolador, Humberto F.S.; Bergtold, Jason S. |
| Keywords: | Production Economics, Food and Agricultural Policy Analysis, Natural Resource Economics |
| Date: | 2018–06–20 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea18:274330&r=eff |
| By: | Börjesson, Maria (CTS - Centre for Transport Studies Stockholm (KTH and VTI)); Isacsson, Gunnar (Swedish Transport Administraton); Andersson, Matts (WSP); Anderstig, Christer (WSP) |
| Abstract: | We explore how the transport improvements impact agglomeration and thereby productivity in mid-Sweden including Stockholm 1995-2006. We measure agglomeration, and changes in agglomeration in response to transport improvements, based on travel times. This is a more accurate measure of agglomeration than previously used and also necessary for understanding how governments can impact agglomeration, and thereby productivity, by transport investments. We regress temporal changes in wages on temporal changes in agglomeration applying a FE estimator. We deal with the potential endogeneity using a novel instrument variable. Our best estimates of the agglomeration elasticity on productivity lie within the interval 0.028-0.035. |
| Keywords: | Agglomeration; wage; productivity; Transport investments; Wider Economic Impacts; Appraisal |
| JEL: | R12 R41 R42 |
| Date: | 2018–10–03 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:ctswps:2018_016&r=eff |
| By: | Rossi-Hansberg, Esteban (Princeton University); Sarte, Pierre-Daniel G. (Federal Reserve Bank of Richmond); Trachter, Nicholas (Federal Reserve Bank of Richmond) |
| Abstract: | Using U.S. NETS data, we present evidence that the positive trend observed in national product-market concentration between 1990 and 2014 becomes a negative trend when we focus on measures of local concentration. We document diverging trends for several geographic definitions of local markets. SIC 8 industries with diverging trends are pervasive across sectors. In these industries, top firms have contributed to the amplification of both trends. When a top firm opens a plant, local concentration declines and remains lower for at least seven years. Our findings, therefore, reconcile the increasing national role of large firms with falling local concentration and a likely more competitive local environment. |
| Keywords: | national product-market concentration; local concentration |
| JEL: | E23 L11 R12 |
| Date: | 2018–09–24 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedrwp:18-15&r=eff |
| By: | Wimmer, Stefan G.; Sauer, Johannes |
| Keywords: | Productivity Analysis and Emerging Technologies, Food and Agricultural Policy Analysis, Production Economics |
| Date: | 2018–06–20 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea18:274382&r=eff |
| By: | Singh, Gurbir; Asirvatham, Jebaraj |
| Keywords: | Productivity Analysis and Emerging Technologies, Production Economics, Research Methods/Econometrics/Stats |
| Date: | 2018–06–20 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea18:274378&r=eff |
| By: | Hadrich, Joleen C.; Pendell, Dustin L.; Kim, Youngjune |
| Keywords: | Ag Finance and Farm Management, Production Economics, Agribusiness Economics and Management |
| Date: | 2018–06–20 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea18:274110&r=eff |
| By: | Frank A. Wolak |
| Abstract: | Charging full requirements customers for distribution network services using the traditional cents per kilowatt-hour (KWh) price creates economic incentives for consumers to invest in distributed generation technologies, such as rooftop solar photovoltaics, despite the fact that marginal cost of grid-supplied electricity is lower. This paper first assesses the economic efficiency properties of this approach to transmission and distribution network pricing and whether current approach to distribution network pricing implies that full-requirement customers cross-subsidize distributed solar customers. Using data on quarterly residential distribution network prices and distributed solar installations from California’s three largest investor-owned utilities I find that larger amounts of distributed solar capacity and more geographically concentrated solar capacity predict higher distribution network prices and average distribution network costs. This result continues to hold even after controlling for average distribution network costs for the utility, Using these econometric model estimates, I find that 2/3 of the increase in residential distribution network prices for each of the three utilities between 2003 and 2016 can attributed to the growth distributed solar capacity. The paper then investigates the extent of the legal obligation that distributed solar generation customers have to pay for sunk costs of investments in the transmission and distribution networks. The paper closes with a description of an alternative approach to distribution network pricing that is likely to increase the economic signals for efficient electricity consumption and the incentive for cost effective installation of distributed solar generation capacity. |
| JEL: | L94 Q02 Q42 Q5 |
| Date: | 2018–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25087&r=eff |