PRODUCTIVE EFFICIENCY IN A REGULATED INDUSTRY - THE AREA ELECTRICITY BOARDS OF ENGLAND AND WALES

The comparative efficiency of privatized electricity distribution is critical to the case for deregulation. The area electricity boards in England and Wales are to be privatized in 1990, and measurement of the potential efficiency gains is essential to the proposed regulatory regime. This paper describes a non-parametric linear programming methodology for measuring productive efficiency which was pioneered by Farrell, and applies it to the present regulated electricity distribution industry in England and Wales. It finds that only five of the twelve boards are technically efficient, and that there are wide divergences in performance. Target improvements for inefficient boards are suggested, and implications for the regulatory mechanism are drawn. © 1991.