Efficiency analysis of East and West German electricity distribution companies – Do the “Ossis” really beat the “Wessis”?

This paper focuses on a technical efficiency difference puzzle that was observed by von Hirschhausen, C., Cullmann, A., Kappeler, A. [Analysis of German electricity distribution utilities – non-parametric and a parametric test, Applied Economics 38 (21) (2006) 2553–2566]. They found that the average Eastern German electricity distributor features a higher technical efficiency than its West German counterpart across a wide variety of empirical model specifications. We apply a robustness analysis concerning the used data, the model specifications as well as the applied methods. We use non-parametric data envelopment analysis (DEA) and the parametric stochastic frontier analysis (SFA) in a distance function framework analyzing physical inputs and outputs based on the original sample. The results largely confirm the robustness of the efficiency difference between East and West German distribution companies.