Victoria Shestalova

Costs and Benefits of Vertical Separation of the Energy Distribution Industry: The Dutch Case

This paper applies insights from the economic literature to evaluate costs and benefits of the policy decision recently taken by the Dutch government to introduce ownership separation between energy distribution on the one hand, and production and retail on the other. The major benefit of this measure is that it enables the privatisation of commercial activities if the infrastructure has to remain in public hands. This benefit can, however, also be realised by more efficient ways, such as improving the corporate governance structure. The other benefits arise from improved network performance, efficiency of regulatory activity and increased competition. The realisation of these results is, of course, not a free lunch. Ownership unbundling reduces economies of scope, creates one-off transaction costs, and may also affect investments in generation by the currently vertically integrated Dutch utility holdings. We conclude that mainly because of the uncertainty about the future role of small-scale generation and the uncertainty about the magnitude of the one-off transaction costs related to the cross-border leases, the net effect on welfare of ownership unbundling is ambiguous.

General Equilibrium Analysis of International TFP Growth Rates

The paper presents a study of the total factor productivity (TFP) performance among developed countries between 1985 and 1990. The analysis includes the three large economies: the US, Japan and Europe. A general equilibrium model of these economies is used to estimate TFP growth at the sectoral and at the aggregate levels. The model is based on the fundamentals of the economies and employs only data on input-output flows, factor inputs across sectors, consumption and trade patterns and endowments. Prices are endogenous in the model. They are obtained as shadow prices from the models linear program and then used to measure TFP growth and decompose it in a technical change effect, a demand effect and a terms-of-trade effect. The technical change effect is highly correlated with the conventional Solow residual measure. This result lends support to the standard measure of technological change.

Alternative Measures of Total Factor Productivity Growth

The four main approaches to the measurement of total factor productivity (TFP)-growth and its decomposition are (i) Solows residual analysis, (ii) the Index Number Approach, (iii) Input-Output Analysis (IO), and (iv) Data Envelopment Analysis (DEA).The corresponding measures of TFP growth are based on different assumptions, which we expose and interrelate.The Solow Residual serves as the benchmark for our comparisons.The interrelationships between the alternative measures permit an interpretation of the differences among them.We consolidate the four alternative measures in a common framework.

SUPPLY-USE FRAMEWORK FOR INTERNATIONAL ENVIRONMENTAL POLICY ANALYSIS

The technical variation between countries in the production of goods and services, in terms of not only input coefficients, but also emission coefficients, creates scope for international trade to reduce environmental pressures. For this purpose we extend the theory of trade and the environment as to accommodate technical variation between countries in production and emissions. We use and steer close to the extended input and output tables, which include emission data. By treating environmental standards analogous to capital and labor capacity constraints, the aggregation problem for economic and environmental measures gets the same format as the well-understood aggregation problem for labor and capital. In a pilot application we determine the gains to free trade in products and emission permits.

Yardstick Competition and Reliability of Supply in Public Utilities

In regulation of network services such as the distribution of electricity, gas and water prices have traditionally been based on own costs of companies. Recently a few regulatory bodies in Europe started to use yardstick competition, a scheme that links prices to the performance of other companies. This has a beneficial impact on costs over the short run, but might have an adverse effect on the reliability of services in the long run. To curb these undesirable effects yardstick competition should be enhanced with some mechanism regulating quality. We show how forms of yardstick competition can be extended to incorporate the aspect of reliability.

COMPLEMENTARITY IN INPUT–OUTPUT ANALYSIS AND STOCHASTICS

The complementarity between the quantity and value systems of input–output analysis is shown to be the basis of the complementarity problem approach to computable general equilibrium. The numerical superiority of the latter to the linear programming approach facilitates stochastic analysis of input–output scenarios. For the example where Kyoto targets are underachieved to uncertain degrees, confidence intervals are derived for the associated consumption reductions.