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posted on 18.08.2005by Thomas G. Weyman-Jones
Stochastic non-parametric efficiency measurement constructs production or cost frontiers
that incorporate both inefficiency and stochastic error. This results in a closer
envelopment of the mean performance of the companies in the sample and diminishes the
effect of extreme outliers. This paper uses the Land, Lovell and Thore (1993) model
incorporating information on the covariance structure of inputs and outputs to study
efficiency across a panel of 14 electricity distribution companies in the UK during the
1990s. The purpose is to revisit the 1999 distribution price control review carried out by
the UK regulator. The regulator’s benchmarking is contrasted with the stochastic nonparametric
efficiency results and with other comparative efficiency models offering close
envelopment of the data. Some conclusions are offered about the possible regulated price
effects in the UK case.