Application of Production Economics in the Electricity Distribution Sector

Abstract

The companies in the electricity distribution sector are mainly natural monopolies. Thus, in most countries they are regulated. It is therefore of interest to investigate the efficiency and productivity of electricity distribution firms, and to examine how the regulation of these firms affects their efficiency and productivity over time. It is also of interest to examine economies of scope and scale in the electricity distribution industry, since these potential economies may be constrained under some regulatory regimes. In this chapter, we examine empirical findings reported in earlier studies of the electricity distribution sectors, with a focus on efficiency, economies of scope and scale, productivity, and productivity change. Additionally, we report evidence on how regulatory regimes affect and constrain the performance of firms, leading to the identification of implications for policy settings. For future research, it would be desirable to have more reliable and relevant data available to fortify conclusions and policy recommendations.