Impact of High-Powered Incentive Regulations on Efficiency and Productivity Growth of Norwegian Electricity Utilities

This study examines the hypothesis that changes to high-powered incentive regulations have a positive efficiency and productivity growth effects in a regulated electricity distribution industry. We estimate an input distance function using the stochastic frontier analysis method to compute technical efficiency scores for 121 Norwegian utilities over the period 2004-2012. We explore sources of productivity growth by parametrically decomposing the Malmquist productivity index into efficiency change, technical change, and scale change. Unlike previous studies, we examine the difference in performance across two regulatory regimes: yardstick competition (2007-2012) and RPI-X incentive regulation (2004-2006). Results show significant efficiency and productivity growth improvements with embodied technical change as the main driver.