Journal Title
Title of Journal: J Regul Econ
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Abbravation: Journal of Regulatory Economics
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Authors: Sebastian Nick Heike Wetzel
Publish Date: 2015/08/07
Volume: 49, Issue: 1, Pages: 33-55
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 longterm investment decisions Specifically we focus on the impact of adjustment costs of investments on estimates of firms’ technical and cost inefficiency We make use of a nonparametric dynamic data envelopment analysis to investigate the dynamic inefficiency of electricity distribution and transmission companies in the US during the years 2004–2011 These results are compared to their static counterparts Our empirical findings reveal that ignoring longterm investments and their corresponding adjustment costs significantly distorts both firmspecific and industrial inefficiency estimates and may thus create misleading incentives for the regulated firms to cut investments
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