Incentive Regulation of Investment Costs: The Case Study of Iranian Electricity Distribution Companies

Pourebadollahan Covich, Mohsen; Nobahar, Elham; Sojoodi, Sakineh; Khalafi, Reza

doi:10.22075/jem.2022.24307.1633

Incentive Regulation of Investment Costs: The Case Study of Iranian Electricity Distribution Companies

Document Type : Original Article

Authors

Mohsen Pourebadollahan Covich ¹

Elham Nobahar ²

Sakineh Sojoodi ²

Reza Khalafi ³

¹ Associate Professor of Economics, University of Tabriz mohsen_p54@hotmail.com

² Assistant Professor of Economics, University of Tabriz

³ Ph.D. Student of Industrial Economics, University of Tabriz

10.22075/jem.2022.24307.1633

Abstract

This study presents a model of regulation of investment costs of Iranian electricity distribution companies through penalty and rewards of these companies. Within this framework, overinvestment can result in partial disallowance of investment costs. The results of surveying 39 Iranian electricity distribution companies over the period of 2011-2017 indicate that using the proposed regulatory model, it is possible to achieve an optimal level of investment in the entire electricity distribution network by reallocation of investment among small, medium and large companies, without lowering the efficiency of the industry.

Keywords

Investment Costs

Incentive Regulation

Heteroscedastic Stochastic Frontier Models

Electricity Distribution Companies

Iran