A comparison of UK and Japanese electricity distribution performance 1985-1998: lessons for incentive regulation

This paper examines relative performance of electricity distribution systems in the UK and Japan between 1985 and 1998 using costbased benchmarking with data envelopment analysis (DEA) and stochastic frontier analysis (SFA) methods. The results suggest that the productivity gain in the UK electricity distribution has been larger than in the Japanese sector. In particular, productivity growth accelerated during the last years when the UK utilities were operating under tightened revenue caps. The findings indicate that while both sectors exhibit efficiency improvements, the efficiency gap between the frontier firms and less efficient firms has widened. The findings also highlight the advantages of using multiple techniques in comparative analysis and in incentive regulation.