Jiro Nemoto and Mika Goto

"Technological externalities and economies of vertical integration in the electric utility industry"
JEL codes: D61, D62, L22, L94
Keywords: economies of vertical integration, shadow cost function, allocative inefficiency, electric utility industry

Abstract: This paper investigates economies of vertical integration of the electric utility industry, focusing on the technological externality between the generation and transmission-distribution stages. For this purpose, a shadow cost function of the symmetric generalized McFadden form is estimated using panel data on the transmission-distribution stage of nine Japanese electric utility firms. The results show that there exist the technological externality effects of generation facilities on the cost of the transmission-distribution stage, suggesting economies of vertical integration.

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