Network utilities performance and institutional quality: Evidence from the Italian electricity sector

Abstract

It is generally accepted that institutions are important for economic development. However, whether the performance of regulated utilities within a country is affected by the quality of institutions is yet to be investigated thoroughly. We analyse how the quality of regional institutions impact performance of Italian electricity distribution utilities. We use a stochastic frontier analysis approach to estimate cost functions and examine the performance of 108 electricity distribution utilities from 2011 to 2015. This unique dataset was constructed with the help of the Italian Regulator for Energy, Networks, and Environment. In addition, we use a recent dataset on regional institutional quality in Italy. We present evidence that utilities in regions with better government effectiveness, responsiveness towards citizens, control of corruption, and rule of law, also tend to be more cost efficient. The results suggest that national regulators should take regional institutional diversity into account in incentive regulation and efficiency benchmarking of utilities.

Productivity drivers of infrastructure companies: Network industries utilizing economies of scale in the digital era

“…Bastianin et al (2018) surveyed the literature on regulatory reform, but they did not cover the utility sector. Borghi et al (2016), Soroush et al (2021), andCastelnovo et al (2019) found that electricity and telecom firms can improve their performance through better quality of governance, but they did not study the effects of product market regulations.…”

Operational Efficiency Improvements in the Portuguese Electricity Sector

“…The Portuguese electricity sector stepped into its final stage of market liberalization in 2006 (Amorim et al, 2013). Previous studies suggest that electricity market reforms could improve efficiency (Barros, 2008;Ma and Zhao, 2015;Lundin, 2020;Bobde and Tanaka, 2020) but in some cases this job may not be perfectly done as the reforms are hampered by incomplete deregulation and practical factors (Sun and Wu, 2020;Lee et al, 2021;Mirza et al, 2021). On the other hand, previous studies on technical efficiency in the electricity sector mostly focus on one of the subsectors and the impact of operational factors on efficiency has been less discussed compared to environmental factors (Growitsch et al, 2012;Karim and Pollitt, 2017;Liu et al, 2019).…”

“…As suggested by previous evidence, incomplete deregulation in the electricity sector may hinder efficiency improvement (Sun and Wu, 2020). The Portuguese electricity market is far from competitive as state guaranteed prices and feed-in tariffs still dominate the market (Amorim et al, 2013).…”

“…Such electricity market reforms are generally expected to improve technical efficiency (Barros, 2008;Ma and Zhao, 2015;Lundin, 2020;Bobde and Tanaka, 2020); however, this effect can be undermined by various factors arising from incomplete deregulation or other practical difficulties (Sun and Wu, 2020;Lee et al, 2021;Mirza et al, 2021). Several countries have deregulated their electricity markets, thus the evolution of technical efficiency during such processes has become the focus of recent studies (Ma and Zhao, 2015;Lundin, 2020;Sun and Wu, 2020). Now that the Portuguese electricity market reform has been ongoing for almost two decades, empirical evidence on whether liberalization has improved efficiency could help understand the effectiveness of the reform.…”

Modeling the Sustainable Integration of Quality and Energy Management in Power Plants

“…Similarly, several studies on quality management have been conducted in the electricity sector [23][24][25]. The country's electricity sector is important and related to people.…”