Persistent and Transient Cost Efficiency – An Application to the Swiss Hydropower Sector

Arbeitspapier

Over the past few years, the price of electricity on the European market has decreased significantly and thereby the competitiveness and profitability of the Swiss hydropower firms has deteriorated. With one possibility to improve the sector’s competitiveness being an increase in the firms’ level of cost efficiency, the goal of this study is to quantify the firms’ level of persistent and transient cost efficiency using the generalized true random effects (GTRE) model introduced by Colombi et al. (2014) and Filippini and Greene (2015). Applying this newly developed GTRE model to a total cost function, the level of cost efficiency of 65 Swiss hydropower firms is analyzed for the period between 2000 and 2013. For comparison, a true random effects (TRE) specification is estimated alongside, serving as a benchmark for the transient level of cost efficiency. The results of the GTRE model show the presence of persistent as well as transient cost inefficiency. The existing level of persistent inefficiency could hinder the hydropower firms from reacting flexibly to new market environments.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Economics Working Paper Series ; No. 16/251

Classification and Topics

• Classification: Wirtschaft ; Econometrics ; Single Equation Models; Single Variables: Panel Data Models; Spatio-temporal Models ; Organizational Behavior; Transaction Costs; Property Rights ; Electric Utilities ; Renewable Resources and Conservation: Water
• Subject: Efficiency measurement ; stochastic frontier analysis ; persistent and transient cost efficiency ; hydropower ; Wasserkraftwerk ; Technische Effizienz ; Schweiz

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Filippini, Massimo ; Geissmann, Thomas ; Greene, William H.
• Event: Veröffentlichung
• (who): ETH Zurich, CER-ETH - Center of Economic Research
• (where): Zurich
• (when): 2014

Further information

• DOI: doi:10.3929/ethz-a-010658518
• Handle: http://hdl.handle.net/10419/171694
• Last update: 10.03.2025, 11:44 AM CET