Universität zu Köln

Nick, Sebastian and Wetzel, Heike (2016). The hidden cost of investment: the impact of adjustment costs on firm performance measurement and regulation. J. Regul. Econ., 49 (1). S. 33 - 56. DORDRECHT: SPRINGER. ISSN 1573-0468

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Abstract

In this study, we address a major problem in the measurement of firm performance and the regulation of natural monopolies, namely the intertemporal character of long-term investment decisions. Specifically, we focus on the impact of adjustment costs of investments on estimates of firms' technical and cost inefficiency. We make use of a nonparametric dynamic data envelopment analysis to investigate the dynamic inefficiency of electricity distribution and transmission companies in the US during the years 2004-2011. These results are compared to their static counterparts. Our empirical findings reveal that ignoring long-term investments and their corresponding adjustment costs significantly distorts both firm-specific and industrial inefficiency estimates and may thus create misleading incentives for the regulated firms to cut investments.

Item Type:	Journal Article
Creators:	Creators Email ORCID ORCID Put Code Nick, Sebastian UNSPECIFIED UNSPECIFIED UNSPECIFIED Wetzel, Heike UNSPECIFIED UNSPECIFIED UNSPECIFIED
URN:	urn:nbn:de:hbz:38-286511
DOI:	10.1007/s11149-015-9285-z
Journal or Publication Title:	J. Regul. Econ.
Volume:	49
Number:	1
Page Range:	S. 33 - 56
Date:	2016
Publisher:	SPRINGER
Place of Publication:	DORDRECHT
ISSN:	1573-0468
Language:	English
Faculty:	Unspecified
Divisions:	Unspecified
Subjects:	no entry
Uncontrolled Keywords:	Keywords Language DATA ENVELOPMENT ANALYSIS; PRICE-CAP REGULATION; DYNAMIC EFFICIENCY; INCENTIVE REGULATION; BEHAVIOR Multiple languages Economics Multiple languages
Refereed:	Yes
URI:	http://kups.ub.uni-koeln.de/id/eprint/28651