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Economies of Scale and Scope in Multi-Utilities

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  • Mehdi Farsi
  • Aurelio Fetz
  • Massimo Filippini

Abstract

This paper explores the economies of scale and scope in the electricity, gas and water utilities. These issues have a crucial importance in the actual policy debates about unbundling the integrated utilities into separate entities, a policy which has often been supported by the ongoing reforms in the deregulation of network industries. This paper argues that the potential improvements in efficiency through unbundling should be assessed against the loss of scope economies. Several econometric specifications including a random-coefficient model are used to estimate a cost function for a sample of utilities distributing electricity, gas and/or water to the Swiss population. The estimates of scale and scope economies are compared across different models and the effect of heterogeneity among companies are explored. While indicating considerable scope and scale economies overall, the results suggest a significant variation in scope economies across companies due to unobserved heterogeneity.

Suggested Citation

  • Mehdi Farsi & Aurelio Fetz & Massimo Filippini, 2008. "Economies of Scale and Scope in Multi-Utilities," The Energy Journal, , vol. 29(4), pages 123-144, October.
    • Handle: RePEc:sae:enejou:v:29:y:2008:i:4:p:123-144
    DOI: 10.5547/ISSN0195-6574-EJ-Vol29-No4-6
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    1. E. Martínez-Budría & S. Jara-Díaz & F. Ramos-Real, 2003. "Adapting Productivity Theory to the Quadratic Cost Function. An Application to the Spanish Electric Sector," Journal of Productivity Analysis, Springer, vol. 20(2), pages 213-229, September.
    2. Mehdi Farsi & Aurelio Fetz & Massimo Filippini, 2007. "Economies of Scale and Scope in Local Public Transportation," Journal of Transport Economics and Policy, University of Bath, vol. 41(3), pages 345-361, September.
    3. Pulley, Lawrence B & Braunstein, Yale M, 1992. "A Composite Cost Function for Multiproduct Firms with an Application to Economies of Scope in Banking," The Review of Economics and Statistics, MIT Press, vol. 74(2), pages 221-230, May.
    4. Erik Biørn & Kjersti-Gro Lindquist & Terje Skjerpen, 2002. "Heterogeneity in Returns to Scale: A Random Coefficient Analysis with Unbalanced Panel Data," Journal of Productivity Analysis, Springer, vol. 18(1), pages 39-57, July.
    5. Sing, Merrile, 1987. "Are Combination Gas and Electric Utilities Multiproduct Natural Monopolies?," The Review of Economics and Statistics, MIT Press, vol. 69(3), pages 392-398, August.
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    More about this item

    Keywords

    Distribution utilities; panel data; economies of scale and scope; electricity; Switzerland; deregulation;
    All these keywords.

    JEL classification:

    • F0 - International Economics - - General

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