Scale economies, technical change and efficiency in Norwegian electricity distribution, 1998–2010

In this paper, we investigate scale economies, technical change and efficiency in Norwegian electricity distribution companies from 1998 to 2010. The organization and structure of this sector has become an important political question. We use panel data from the Norwegian Water Resources and Energy Directorate to address this issue. Specifically, we use input distance functions to examine scale economies, technical change and technical efficiency in the distribution companies. In modeling technically inefficiency, we separate company-specific effects from inefficiency. Our results show that the potential for scale economies is generally highest among small companies. To some extent, this finding is related to the structure of small companies and is likely to have future policy implications.