Effects of Privatization on Price and Labor Efficiency: The Swedish Electricity Distribution Sector

Abstract

I examine the effects of privatization, in the form of acquisitions, in the Swedish electricity distribution sector. As the majority of the distribution networks have remained publicly owned, I use a synthetic control method to identify the effects on price and labor efficiency. In comparison to their synthetic counterparts, I find that the acquired networks increased labor efficiency by on average 18 percent, while no effect is found on price. Thus, the evidence suggests substantial efficiency gains but that these are not fed through to consumer prices. I also find evidence that efficiency gains are due to increased returns to scale, since each acquisition involved several bordering networks that were separately operated by each municipality prior to the acquisitions.

Keywords: incentive regulation, electricity distribution, natural monopoly, norm model regulation, privatization, acquisitions

JEL Classification: L33, L52, L94