Incentive Regulation: Evidence From German Electricity Networks
63 Pages Posted: 23 Feb 2018 Last revised: 29 Mar 2019
Date Written: February 1, 2018
We propose a difference-in-differences (DiD) approach to estimate the impact of incentives on cost reduction. We show theoretically, and estimate empirically, that German electricity distribution system operators (DSOs) incur higher costs when subject to a lower powered regulation mechanism. The difference is particularly significant (about 7%) for firms in the upper quartile of the efficiency distribution, a pattern which is consistent with the pooling of types under the threat of ratcheting.
Keywords: Regulation, Ratchet Effect, Electricity Utilities, Difference-in-Differences, Efficiency Analysis
JEL Classification: K23, L51, L94, L98, D24, D82
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