Discussion Papers, Department of Business and Management Science, Norwegian School of Economics (NHH)
Optimal Scale in Different Environments – The Case of Norwegian Electricity Distribution Companies
(), Endre Bjørndal
() and Mette Bjørndal
Abstract: We study returns to scale in Norwegian electricity
distribution companies. The scale issue of this sector has become an
important political question, and it was for instance discussed by the
Reiten commission (OED, 2014) in a study about the future structure and
organization of the Norwegian electricity network industry. We use panel
data from the Norwegian Water Resources and Energy Directorate (NVE) for
the period from 2004 to 2010. The Data Envelopment Analysis (DEA) method
and the Stochastic Nonparametric Envelopment of Data (StoNED) approach are
applied to examine the scale issue. We show that a majority of the
companies are smaller than the optimal size, in line with Kumbhakar et al.
(2014). The performance of Norwegian distribution companies are influenced
by a number of environmental factors, and some of these factors are
negatively correlated with company size. However, our results show that
controlling for environmental factors when estimating returns to scale does
not have a big effect on the estimated optimal sizes.
Keywords: Returns to scale; electricity distribution companies; Data Envelopment Analysis; Stochastic Nonparametric Envelopment of Data; (follow links to similar papers)
JEL-Codes: Q00; (follow links to similar papers)
22 pages, September 17, 2015
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