Data Envelopment Analysis Stream

Talk:

The use of benchmarking in regulation with special reference to DEA

Utility companies provide services like water, energy and telecommunications etc. They have virtual monopoly power relative to clients and are therefore regulated to simulate market conditions. There is a prevailing view that markets either do not exist or are not competitive enough in the case of utilities. In essence, the Regulator is there to protect the consumer from excessive costs for the services provided by utilities.

The need for utilities to make large capital-intensive infrastructure investments, coupled with the absence of substitutes and inelastic demand, tends to generate natural monopolies. Given this market structure, governments have set up regulatory systems to control prices and incentivise investment, continuity of supply and improvement in the quality of service. The regulatory systems have largely developed in tandem with the privatisation of previously publicly owned and managed utilities such as gas, electricity, water and telecommunications.

This talk will give an overview of benchmarking and its purpose in the regulation of utilities in Europe and the UK. It will then outline how DEA has been integrated into Regulatory systems and offer insight into how DEA can be extended to improve the incentives within regulation.

Presenters:

Ali Emrouznejad will provide an introduction to DEA, before Emmanuel Thanassoulis and Srini Parthasarathy speak about DEA in regulation. The session will finish with a demonstration of how PIM-DEA software can be applied in regulation and a Q&A session.

Ali Emrouznejad, 
Aston University

Emmanuel Thanassoulis, 
Aston University

Srini Parthasarathy
Oxera Consulting LLP