Scale Economies in Electricity Distribution: A Semiparametric Analysis

Ontario, Canada for the period 1993–5. The data reveal substantial evidence of increasing returns to scale with minimum ecient scale being achieved by firms with about 20,000 customers. Larger firms exhibit constant or decreasing returns. Utilities which deliver additional services (such as water/sewage), have significantly lower costs, indicating the presence of economies of scope. Our basic specifications comprise semiparametric variants of the translog cost function where output enters non-parametrically and remaining variables (including their interactions with output) are parametric. We rely upon non-parametric dierencing techniques and extend a previous dierencing test of equality of non-parametric regression functions to a panel data setting. Copyright # 2000 John Wiley & Sons, Ltd. 1