Cost efficiency and optimal scale of electricity distribution firms in Taiwan: An application of metafrontier analysis

Yi Ju Huang, Ku Hsieh Chen, Chih Hai Yang

Research output: Contribution to journalArticlepeer-review

30 Scopus citations

Abstract

This paper analyzes the cost efficiency and optimal scale of Taiwan's electricity distribution industry. Due to the substantial difference in network density, firms may differ widely in production technology. We employ the stochastic metafrontier approach to estimate the cost efficiency of 24 distribution units during the period 1997-2002. Empirical results find that the average cost efficiency is overestimated using the traditional stochastic frontier model, especially for low density regions. The average cost efficiency of the high density group is significantly higher than that of the low density group as it benefits from network economies. This study also calculates both short-term and long-term optimal scales of electricity distribution firms, lending policy implications for the deregulation of the electricity distribution industry.

Original languageEnglish
Pages (from-to)15-23
Number of pages9
JournalEnergy Economics
Volume32
Issue number1
DOIs
StatePublished - Jan 2010

Keywords

  • Efficiency
  • Electricity distribution
  • Metafrontier
  • Optimal scale

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