Massimo Filippini

Elasticities of electricity demand in urban Indian households

Energy demand, and in particular electricity demand in India has been growing at a very rapid rate over the last decade. Given, current trends in population growth, industrialisation, urbanisation, modernisation and income growth, electricity consumption is expected to increase substantially in the coming decades as well. Tariff reforms could play a potentially important role as a demand side management tool in India. However, the effects of any price revisions on consumption will depend on the price elasticity of demand for electricity. In the past, electricity demand studies for India published in international journals have been based on aggregate macro data at the country or sub-national/ state level. In this paper, price and income elasticities of electricity demand in the residential sector of all urban areas of India are estimated for the first time using disaggregate level survey data for over thirty thousand households. Three electricity demand functions have been estimated using monthly data for the following seasons: winter, monsoon and summer. The results show electricity demand is income and price inelastic in all three seasons, and that household, demographic and geographical variables are important in determining electricity demand, something that is not possible to determine using aggregate macro models alone.

Regulation and Measuring Cost-Efficiency with Panel Data Models: Application to Electricity Distribution Utilities

This paper examines the performance of panel data models in measuring cost-efficiency of electricity distribution utilities. Different cost frontier models are applied to a sample of 59 utilities operating in Switzerland from 1988 to 1996. The estimated coefficients and inefficiency scores are compared across different specifications. The results indicate that while the average inefficiency is not sensitive to the econometric specification, the efficiency ranking varies significantly across models. The reasonably low out-of-sample prediction errors suggest that panel data models can be used as a prediction instrument in order to narrow the information gap between the regulator and regulated companies.

The use of a variable cost function in the regulation of the Italian water industry

Abstract The purpose of this study is to estimate a multivariate variable cost function in order to analyze the cost structure of a sample of Italian water distribution companies. The empirical results of this study could be used by the Italian Regulation Authority of this sector to improve the actual tariff regulation process. A variable cost function was estimated using panel data for a sample of 32 water distribution firms operating at the provincial level over the period 1991–1995. Results indicate the importance of explanatory variables such as price of labor, water loss and service area characteristics. Results also indicate the existence of economies of output and customer density and the presence of small diseconomies of scale.

The influence of ownership on the cost of bus service provision in Switzerland - an empirical illustration

In deregulated transport markets, a firms ownership status and management system represent an important issue. Property right theory suggests that productivity and performance are higher in the private than in the public sector. In Switzerland, providers of bus transportation are traditionally corporations, though a large part of their equity shares are still held by the public sector (federal government, cantons, municipalities). This paper examines the potential impact of ownership on the cost of bus service provision for a sample of private, public and mixed bus companies in Switzerland. The estimation of a translog cost model has been considered for 34 bus transit companies observed over 5 years (1991–1995). The results only partially confirm that if the private sector holds shares in the companys capital, efficiency is enhanced. In addition, measures of economies of scale and density are derived and discussed within the actual public transport policy.

Swiss residential demand for electricity

A residential demand for electricity is estimated using aggregate data at a city level for 40 Swiss cities over the period 1987 to 1990. For this purpose, a log linear stochastic equation for electricity consumption was estimated. The empirical analysis has highlighted some of the characteristics of the Swiss residential electricity market. The price elasticity was estimated to be -0.30, which shows a moderate responsiveness of electricity consumption to changes in prices. This result indicates a price-inelastic demand for electricity with a lower price elasticity than those reported in previous studies. From an energy policy point of view this result implies that there is little room for discouraging residential electricity consumption using price increases.

Fuel choices in urban Indian households

This paper applies an ordered discrete choice framework to model fuel choices and patterns of cooking fuel use in urban Indian households. The choices considered are for three main cooking fuels: firewood, kerosene, and LPG (liquid petroleum gas). The models, estimated using a large microeconomic dataset, show a reasonably good performance in the prediction of households’ primary and secondary fuel choices. This suggests that ordered models can be used to analyze multiple fuel use patterns in the Indian context. The results show that lack of sufficient income is one of the main factors that retard households from using cleaner fuels, which usually also require the purchase of relatively expensive equipments. The results also indicate that households are sensitive to LPG prices. In addition to income and price, several socio-demographic factors such as education and sex of the head of the household are also found to be important in determining household fuel choice.

Economies of scale and utilization in the Swiss electric power distribution industry

Economies of scale and utilization in the Swiss electricity distribution industry are analysed. A translog variable-cost function was estimated using panel data for a sample of 39 municipal utilities over the period 1988–1991. Economies of both scale and utilization appear to exist in the distribution of electricity, both for small-medium- and large-sized utilities. Thus, the empirical evidence suggests sub-additivity of the cost function over the relevant range of output for the Swiss electricity distribution utilities, a necessary condition for a natural monopoly to exist.

Regional Differences in Electricity Distribution Costs and their Consequences for Yardstick Regulation of Access Prices

Abstract In this paper we estimate an average-cost function for a panel of 59 Swiss local and regional electricity distribution utilities as a basis for yardstick regulation of the distribution-network access prices. Shleifer (1985) proposed yardstick competition in terms of price to regulate local monopolies producing a homogeneous good. The regulated price for the individual firms depends on the average costs of identical firms. The yardstick competition concept can also be applied to firms that produce heterogeneous goods if these goods differ only in observable characteristics. To correct the yardstick for heterogeneity the regulator can use a multivariate estimation of an average-cost function. In the case of electricity distribution, the heterogeneity of output consists mainly of different characteristics of the distribution service areas. In this paper we follow Shleifers suggestion to estimate a multivariate average-cost function that can be employed by the regulatory commission to benchmark network access prices at the distribution level. Several exogenous variables measuring the heterogeneity of the service areas were included in the cost model specification. We find that the regional differences of the service areas — e.g. area shares of forests, agricultural areas or unproductive land and population density — significantly influence electricity distribution costs.

Are Municipal Electricity Distribution Utilities Natural Monopolies

The purpose of this study is to analyse the cost structure of the Swiss electricity distribution utilities in order to assess economies of scale and density and the desirability of competition in the distribution of electric power. A translog cost function was estimated using panel data for a sample of 39 municipal utilities over the period 1988–1991. The results indicate the existence of economies of density for most output levels and the existence of economies of scale only for small and medium-sized electric utilities. The empirical evidence suggests that franchised monopolies, rather than side-by-side competition, is the most efficient form of production organization in the electric power distribution industry. Further, the majority of the utilities analysed do not operate at an optimal service territory size. Therefore, the consolidation of small utilities whose service territories are adjacent is likely to reduce costs.

Unobserved heterogeneity in stochastic cost frontier models: an application to Swiss nursing homes

This paper applies a number of stochastic cost frontier models to a panel data set and compares their ability to distinguish unobserved heterogeneity from inefficiency variation among firms. The main focus is on Greenes 2005 panel data model that incorporates firm-specific effects in a stochastic frontier framework. In cases where the unobserved heterogeneity is correlated with explanatory variables, while the random effects estimators can be biased the fixed effects model may overestimate inefficiency. In line with Mundlak, a simple method is proposed to include such correlations in random effects specification. The sample includes 36 Swiss nursing homes operating from 1993 to 2001. The results suggest that the proposed specification can avoid the inconsistency problem while keeping the inefficiency estimates unaffected.