The role of model specification in finding the influence of ownership and regulatory regime on utility cost: the case of Swedish electricity distribution

Abstract : The lack of consensus on how utility cost is affected by variation in ownership and regulatory regime has been attributed to sector-specific conditions and interacting observed heterogeneous factors. This study investigates a further source of ambiguous outcomes as it evaluates different econometric specifications related to variations in utility objective/the design of regulatory regime and influences from unknown/uncertain heterogeneous factors. Consistent with theoretical predictions, 7 years of data from the Swedish electricity distribution sector reveal that private ownership and stronger financial incentives are associated with lower costs. It is also demonstrated that inappropriate model specifications can produce arbitrary conclusions.