Statistical evaluation of Data Envelopment Analysis versus COLS Cobb–Douglas benchmarking models for the 2011 Brazilian tariff revision. (March 2015)

• Record Type: Journal Article
• Authors: Costa, Marcelo Azevedo; Lopes, Ana Lúcia Miranda; de Pinho Matos, Giordano Bruno Braz
• Is Part Of: Socio-economic planning sciences. Number 49(2015)
• Page Start: 47
• Page End: 60
• Publication Date: 2015-03
• Subjects: Benchmarking -- Corrected Ordinary Least Squares -- Cobb–Douglas production function -- Data Envelopment Analysis; Planning -- Periodicals; Economic policy -- Periodicals; Social policy -- Periodicals; Planification -- Périodiques; Politique économique -- Périodiques; Politique sociale -- Périodiques; ECONOMIC PLANNING; SOCIAL PLANNING; DECISION-MAKING; 361
• DOI: 10.1016/j.seps.2014.11.001
• Languages: English
• ISSNs: 0038-0121

Abstract

Abstract: In 2011, the Brazilian Electricity Regulator (ANEEL) implemented a benchmarking model to evaluate the operational efficiency of power distribution utilities. The model is based on two benchmarking methods: Data Envelopment Analysis (DEA) and Corrected Ordinary Least Squares (COLS) with a Cobb Douglas production function. Although the estimated scores are highly correlated, differences between the scores are as high as 41%. For some companies differences between the efficiency scores result in substantial reduction in regulatory operational costs. We provide a detailed statistical comparison which indicates that the COLS Cobb Douglas model has major deficiencies in terms of estimating efficiency scores. Highlights: We evaluate the benchmarking model used by the Brazilian regulator in 2011. Major differences are reported between DEA and Cobb–Douglas COLS efficiency scores. We provide a detailed statistical analysis of the problem. We point out major statistical issues of the COLS Cobb–Douglas. We present statistical tests to compare DEA and COLS.