Controlling for environmental conditions in regulatory benchmarking

Research output: Contribution to journalJournal articleResearchpeer-review

Regulators often use Data Envelopment Analysis (DEA) to create a pseudo-competitive environment for sectors with natural monopolies. In this paper, we look at the characteristics of the method used by the Danish water regulator to account for differences in the companies’ environmental conditions and propose adjustments to this method. Second stage analysis reveals significant correlations between the efficiency scores and these external factors, indicating that the currently used method is insufficient. To explain this, we develop a new second stage analysis, using permutation-based approaches, where we account for the distribution of the DEA assigned multipliers.

Original languageEnglish
Article number101390
JournalUtilities Policy
Volume77
Number of pages13
ISSN0957-1787
DOIs
Publication statusPublished - 2022

Bibliographical note

Publisher Copyright:
© 2022 The Authors

    Research areas

  • Data envelopment analysis, Environmental variables, Permutation, Regulation, Second stage analysis

ID: 325716892