Persistent and Transient Cost Efficiency – An Application to the Swiss Hydropower Sector

CER-ETH – Center of Economic Research at ETH Zurich Working Paper No. 16/251

40 Pages Posted: 13 Jun 2016 Last revised: 17 Nov 2016

See all articles by Massimo Filippini

Massimo Filippini

ETH Zürich; University of Lugano - Faculty of Economics

Thomas Geissmann

Massachusetts Institute of Technology; ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich

William H. Greene

New York University Stern School of Business

Date Written: November 16, 2016

Abstract

Over the past few years, the price of electricity on the European market has decreased significantly and thereby the competitiveness and profitability of the Swiss hydropower firms has deteriorated. With one possibility to improve the sector’s competitiveness being an increase in the firms’ level of cost efficiency, the goal of this study is to quantify the firms’ level of persistent and transient cost efficiency using the generalized true random effects (GTRE) model introduced by Colombi et al. (2014) and Filippini and Greene (2015). Applying this newly developed GTRE model to a total cost function, the level of cost efficiency of 65 Swiss hydropower firms is analyzed for the period between 2000 and 2013. For comparison, a true random effects (TRE) specification is estimated alongside, serving as a benchmark for the transient level of cost efficiency. The results of the GTRE model show the presence of persistent as well as transient cost inefficiency. The existing level of persistent inefficiency could hinder the hydropower firms from reacting flexibly to new market environments.

Keywords: Efficiency measurement, stochastic frontier analysis, persistent and transient cost efficiency, hydropower

JEL Classification: C01, C23, D23, L94, Q25

Suggested Citation

Filippini, Massimo and Geissmann, Thomas and Greene, William H., Persistent and Transient Cost Efficiency – An Application to the Swiss Hydropower Sector (November 16, 2016). CER-ETH – Center of Economic Research at ETH Zurich Working Paper No. 16/251, Available at SSRN: https://ssrn.com/abstract=2791525 or http://dx.doi.org/10.2139/ssrn.2791525

Massimo Filippini

ETH Zürich ( email )

ETH-Zentrum
CH-8092 Zurich
Switzerland

University of Lugano - Faculty of Economics ( email )

Via Giuseppe Buffi 13
CH-6900 Lugano, CH-6904
Switzerland

Thomas Geissmann (Contact Author)

Massachusetts Institute of Technology ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich ( email )

Zürichbergstrasse 18
Zurich, 8092
Switzerland

William H. Greene

New York University Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States
212-998-0876 (Phone)

HOME PAGE: http://people.stern.nyu.edu/wgreene

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
98
Abstract Views
515
rank
295,607
PlumX Metrics