On the Regulatory Application of Efficiency Measures

Abstract

The last decade has witnessed a change to more powerful incentive schemes and the adoption by a large number of regulators of some form of price cap regimes. The efficiency frontiers literature tackles the problem of measuring the X factor in a price cap regime with an RPI-X rule. However, that literature has by large focused solely on the theoretical aspects involved in the estimation of an efficient frontier. The empirical application of the theoretical concepts (which is the main interest of regulators) has not yet received equal attention. In this paper we address this issue and try to elaborate upon the applied aspects of efficiency measurement.

Keywords: efficiency, total factor productivity, data envelopment analysis

JEL Classification: L51, L97