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Cost Savings From Generation and Distribution with an Application to Italian Electric Utilities

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  • Giovanni Fraquelli
  • Massimiliano Piacenza
  • Davide Vannoni

Abstract

In the last decade, the European Commission promoted a new regulatory framework aiming at a gradual liberalization of the energy markets. The introduction of competition among generators implies the need to separate generation from transmission and distribution activities. However, if savings can be reached by operating at different stages, vertical separation would increase the costs of providing power. This paper tests for the presence of economies from vertical integration on a sample of Italian local electric utilities and finds evidence of both multi-stage economies of scale and vertical economies. Even if the hypothesis of global subadditivity is not supported, our evidence suggests that a complete divestiture policy would entail efficiency losses. Copyright Springer Science+Business Media, Inc. 2005

Suggested Citation

  • Giovanni Fraquelli & Massimiliano Piacenza & Davide Vannoni, 2005. "Cost Savings From Generation and Distribution with an Application to Italian Electric Utilities," Journal of Regulatory Economics, Springer, vol. 28(3), pages 289-308, November.
    • Handle: RePEc:kap:regeco:v:28:y:2005:i:3:p:289-308
    DOI: 10.1007/s11149-005-3959-x
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    References listed on IDEAS

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    More about this item

    Keywords

    composite cost function; electric utilities; liberalization; subadditivity; vertical integration; L11; L50; L94;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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