Dynamic Efficiency Estimation

The shadow cost approach is developed in the context of the dynamic duality model of intertemporal decision making to formulate theoretical and econometric models of dynamic efficiency. The dynamic efficiency model is applied to a panel of 72 U.S. major investor-owned electric utilities using fossil fuel–fired steam electric power generation over the period 1986–1999. The major results show that most electric utilities underutilized fuel relative to the aggregated labor and the maintenance input, and overutilized capital in production. States adopting a deregulation plan improve the performance of utilities in terms of the technical efficiency of variable inputs.

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