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Overcoming Data Limitations in Nonparametric Benchmarking: Applying PCA-DEA to Natural Gas Transmission

Author

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  • Maria Nieswand
  • Astrid Cullmann
  • Anne Neumann

Abstract

This paper provides an empirical demonstration for a practical approach of efficiency evaluation against the background of limited data availability in some regulated industries. Here, traditional DEA may result in a lack of discriminatory power when high numbers of variables but only limited observations are available. We apply PCA-DEA for radial efficiency measurement to US natural gas transmission companies in 2007. This allows us to reduce dimensions of the optimization problem while maintaining most of the variation in the original data. Our results suggest that the PCA-DEA methodology reduces the probability of over-estimation of the individual firm-specific performance. It also allows for a large number of original variables without substantially reducing the discriminatory power of the model.

Suggested Citation

  • Maria Nieswand & Astrid Cullmann & Anne Neumann, 2009. "Overcoming Data Limitations in Nonparametric Benchmarking: Applying PCA-DEA to Natural Gas Transmission," Discussion Papers of DIW Berlin 962, DIW Berlin, German Institute for Economic Research.
    • Handle: RePEc:diw:diwwpp:dp962
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    File URL: https://www.diw.de/documents/publikationen/73/diw_01.c.345239.de/dp962.pdf
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    Cited by:

    1. Victor Ajayi & Michael Pollitt, 2022. "Changing times - Incentive regulation, corporate reorganisations, and productivity in Great Britain’s gas networks," Working Papers 023, The Productivity Institute.
    2. Maria Nieswand & Matthias Walter, 2010. "Cost Efficiency and Subsidization in German Local Public Bus Transit," Discussion Papers of DIW Berlin 1071, DIW Berlin, German Institute for Economic Research.
    3. Victor Ajayi & Michael G. Pollitt, 2022. "Changing times: Incentive regulation, corporate reorganisations, and productivity in Great Britain’s gas networks," Working Papers EPRG2214, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    4. Corrado Lo Storto, 2018. "A Nonparametric Economic Analysis of the US Natural Gas Transmission Infrastructure: Efficiency, Trade-Offs and Emerging Industry Configurations," Energies, MDPI, vol. 11(3), pages 1-24, February.

    More about this item

    Keywords

    Efficiency analysis; DEA; PCA; company regulation; natural gas transmission;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities

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