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Structural reforms and productivity in the electricity generation sector

ABSTRACT The European electricity industry has witnessed substantial restructuring over the last decades, aiming to introduce competitive and efficient electricity markets. This study sheds light on the effects of vertical disintegration and privatization on the productivity of European electricity generators. Using a data set of firms, incorporated in 17 European countries, from 2006 to 2013, I estimate the effect of structural reforms, considering their endogeneity, on technical efficiency derived from production instead of cost functions. This study, therefore, fills the academic void of the effects of structural reforms on productivity. Furthermore, I control for weather conditions, being a novelty with respect to the previous literature. The overall results show that vertical separation significantly decreases productivity of electricity generators by 8–14%, depending on the production function chosen. Besides, privatization results in efficiency gains, thereby providing policy lessons on the implementation of structural reforms.