Benchmarking and incentive regulation of quality of service: an application to the UK electricity distribution utilities
Pollitt, Michael G.
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Giannakis, D., Jamasb, T., & Pollitt, M. G. (2004). Benchmarking and incentive regulation of quality of service: an application to the UK electricity distribution utilities. https://doi.org/10.17863/CAM.5102
Quality of service has emerged as an important issue in post-reform regulation of electricity distribution networks. Regulators have employed partial incentive schemes to promote cost saving, investment efficiency, and service quality. This paper presents a quality-incorporated benchmarking study of the electricity distribution utilities in the UK between 1991/92 and 1998/99. We calculate technical efficiency of the utilities using Data Envelopment Analysis technique and productivity change over time using quality-incorporated Malmquist indices. We find that cost efficient firms do not necessarily exhibit high service quality and that efficiency scores of cost-only models do not show high correlation with those of quality-based models. The results also show that improvements in service quality have made a significant contribution to the sector�s total productivity change. In addition, we show that integrating quality of service in regulatory benchmarking is preferable to cost-only approaches.
Classification-JEL: L15, L51, L94, quality of service, benchmarking, incentive regulation, data envelopment analysis, electricity