OJAppS  Vol.4 No.4 , March 2014
The Impact of Liberalization on the Production of Electricity in Japan: Stochastic Frontier Analysis
Abstract: This study aims to measure the impact of liberalization on the efficiency of electricity production in Japan using Stochastic Frontier Analysis (SFA). In addition, this study also aims to examine whether or not economies of scale exist in the electricity generation sector and the transmission sector, and whether or not economies of scope exist between electricity generation and transmission. Since 1995, liberalization of the electricity market in Japan has been phased in and regulations on entry have been relaxed three times. One motivation for these regularity changes has been to improve the efficiency of electricity production by introducing competition. Using a panel data set on the nine main power companies in Japan over the period 1970-2010, estimates of fixed-effects and stochastic frontier models of the cost function are obtained and compared. Estimates of the cost function show that liberalization has improved cost efficiency when both frontier models and non-frontier models are estimated. Estimates of the fixed-effects model are used to calculate economies of scale and economies scope because the data support the fixed-effects model. Economies of scope are found to exist for all nine power companies, while overall economies of scope declined in the 1970s and have improved little by little since the 1980s.
Cite this paper: Taniguchi, M. (2014) The Impact of Liberalization on the Production of Electricity in Japan: Stochastic Frontier Analysis. Open Journal of Applied Sciences, 4, 155-167. doi: 10.4236/ojapps.2014.44016.

[1]   Taniguchi, M. (2013) The Impact of Liberalization on the Production of Electricity in Japan, Keio/Kyoto Joined Global Center of Excellence Program, Raising Market Quality-Integrated Design of Market Infrastructure, DP2012-027.

[2]   Taniguchi, M. (2013) The Impact of Liberalization on the Production of Electricity in Japan. The Proceedings of the International Conference on Applied Economics (ICOAE) 2013, Istanbul, 27-29 June 2013, 712-721.

[3]   Goto, M. and Inoue, T. (2012) Economic Analysis of Structural Reforms of Electricity Industry: Investigation of Cost Structure of Japanese Electricity (Denkijigyou no KouzoukaikakunikansuruKeizaiseibunseki: WagakuniDenkijigyou no Hiyoukouzoubunseki). Central Research Institute of Electric Power Industry Research Report, Paper#Y11009. (in Japanese)

[4]   Kuwabara, T. and Ida, T. (2000) The Panel Data Analysis of the Japanese Electric Power Industry (Nihon no Denryokusangyou no Panerudeta Bunseki), Kouekijigyoukenkyu. KouekiJigyouKenkyuu, 52, 71-82. (in Japanese)

[5]   Nemoto, J. and Goto, M. (2006) Measurement of Technical and Allocative Efficiencies Using a CES Cost Frontier: A Benchmarking Study of Japanese Transmission-Distribution Electricity. Empirical Economics, 31, 31-48.

[6]   Kinugasa, T. (2011) Estimating the Degree of Market Competitiveness after Deregulation: An Analysis Using the Translog Production Function for the Japanese Electricity Industry (Kiseikanwago no Shijoukyousoudo no Suitei; Nihon no Denryoku sangyou no Toransurogugata seisan kansuuwomotiita Bunseki). Proceedings of the 68thConference of Japan Economic Policy Association, Tokyo, 28-29 May 2011. (in Japanese)

[7]   Tsutsui, M (2000) Comparison of Intertemporal Technical Efficiency by Sector among Japanese and US Electric Utilities. The Application of Malmquist Index Calculated by DEA, Central Research Institute of Electric Power Industry Research Report, Y99013. (in Japanese with English Abstract)

[8]   Hattori, T., Jamasb, T. and Pollitt, M. (2005) Electricity Distribution in the UK and Japan: A Comparative Efficiency Analysis 1985-1998. Energy Journal, 26, 23-47.

[9]   Yamaguchi, S. (2007) The Results and Issues of the Electricity Liberalizations in Japan: A Comparison of Japan to Europe and the US (Denryokujiyuuka no Seika to Kadai: Oubei to Nihon no Hikaku), Issue Brief, No. 595 (in Japanese)

[10]   Minister of Economy, Trade and Industry (2011) Material 3: Discussion Points of the Calculations for Electricity Charges (Shiryou 3: DenkiryoukinSanteijou no KakuRontennitsuite). Constructed by Heisei 23 nen 12 gatsu Denkiryoukinseido Unyou no Minaoshinikakaru Yushikisyakaigi Jimukyoku.

[11]   Baumol, W.J., Panzar, J.C. and Willig, R.D. (1982) Contestable Markets and the Theory of Industry Structure. Harcourt Brace Jovanovich, New York.

[12]   Battese, G.E. and Coelli, T.J. (1992) Frontier Production Functions, Technical Efficiency and Panel Data: With Application to Paddy Farmers in India. Journal of Productivity Analysis, 3, 153-169.

[13]   Greene, W. (2005) Fixed and Random Effects in Stochastic Frontier Models. Journal of Productivity Analysis, 23, 7-35.