Cost efficiency in the Swiss gas distribution sector

This paper studies the cost structure of gas distribution utilities in Switzerland. Three stochastic frontier models are applied to a panel of 26 companies operating from 1996 to 2000. Efficiency is assumed to be constant over time. The analysis highlights the importance of output characteristics such as customer density and network size. The results suggest that the utilities could slightly reduce their operating costs by improving efficiency. There is no evidence of significant unexploited scale economies. However, our analysis indicates that the estimates of scale economies could be sensitive to the assumptions regarding the variation of output with output characteristics.