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Optimal Scale in Different Environments – The Case of Norwegian Electricity Distribution Companies

Cheng, Xiaomei; Bjørndal, Endre; Bjørndal, Mette
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URI
http://hdl.handle.net/11250/300270
Date
2015-09-17
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  • Discussion papers (FOR) [509]
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.
Publisher
FOR
Series
Discussion paper;22/15

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