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A New Perspective: Investment and Efficiency under Incentive Regulation

Poudineh, R.; Jamasb, T.

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R. Poudineh

T. Jamasb


Following the liberalisation of the electricity industry since the early 1990s, many sector regulators have adopted incentive regulation aided by benchmarking and productivity analysis. This approach has often resulted in efficiency and quality of service improvement. However, there remains a growing concern as to whether the utilities invest sufficiently and efficiently in maintaining and modernising their networks. This paper studies the relationship between investments and cost efficiency in the context of incentive regulation with ex-post regulatory treatment of investments using a panel dataset of 129 Norwegian distribution companies from 2004 to 2010. We introduce the concept of "no impact efficiency" as a revenue-neutral efficiency effect of investment under incentive regulation that makes a firm "investment efficient" in cost benchmarking. Also, we estimate the observed efficiency effect of investments and compare these with the no impact efficiency. Finally, we discuss the implications of cost benchmarking for investment behaviour of network companies.


Poudineh, R., & Jamasb, T. (2015). A New Perspective: Investment and Efficiency under Incentive Regulation. The Energy Journal, 36(4), 241-263.

Journal Article Type Article
Publication Date Oct 1, 2015
Deposit Date Jun 9, 2014
Publicly Available Date Jul 25, 2014
Journal Energy Journal
Print ISSN 0195-6574
Electronic ISSN 1944-9089
Publisher International Association for Energy Economics
Peer Reviewed Peer Reviewed
Volume 36
Issue 4
Pages 241-263
Keywords Investments, Cost efficiency, Incentive regulation, Distribution network, No impact efficiency.
Public URL


Accepted Journal Article (653 Kb)

Copyright Statement
This article is Gold Open Access and published under CC-BY license terms and conditions.

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