As one publicly owned company monopolizes the electricity supply, Korea’s power market has been distorted. Firms faced with constraints imposed by a regulatory environment are likely to fail to minimize their production costs subject to market prices. In this paper, we test for allocative efficiency of fuel inputs for the Korean electric power industry over the period of 1990–2015. The potential cost savings and maximum power supply price markdown are calculated by imposing allocative efficiency. The power plants, on average, could have reduced their fuel costs by as much as 22.1% annually. The attainment of allocative efficiency would have enabled the power supply price to be cut by 7.6% annually.
AtkinsonSEHalvorsenR.Parametric efficiency tests, economies of scale, and input demand in U.S. electric power generation. Int Econ Rev1984;
25: 647–662.
2.
AtkinsonSEHalvorsenR.A test of relative and absolute price efficiency in regulated utilities. Rev Econom Stat1980;
62: 81–88.
3.
AverchHJohnsonL.Behavior of a firm under regulatory constraint. Am Econom Rev1962;
52: 1052–1069.
4.
KumbhakarSC.Allocative distortions, technical progress, and input demand in U.S. airlines: 1970–1984. Int Econom Rev1992;
33: 727–737.
5.
AtkinsonSECornwellC.Parametric estimation of technical and allocative inefficiency with panel data. Int Econom Rev1994;
35: 231–243.
6.
AtkinsonSEHalvorsenR.Parametric tests for static and dynamic equilibrium. J Economet1998;
85: 33–50.
7.
LeeM.The effect of sulfur regulations on the U.S. electric power industry: a generalized cost approach. Energy Econom2002;
24: 491–508.
8.
LeeM.The effect of allocative inefficiency on CO2 abatement costs for the Korean steel industry: a shadow cost approach. Carbon Manage2017;
8: 135–142.
9.
LauLJYotopoulosPA.A test for relative efficiency and application to Indian agriculture. Am Econom Rev1971;
61: 94–109.
10.
EllisGMHalvorsenR.Estimation of market power in a nonrenewable resource industry. J Political Econom2002;
110: 883–899.
11.
DiewertWE.Duality approaches to microeconomic theory. In: ArrowKJIntriligatorMD (eds) Handbook of mathematical economics,
vol.2.
Amsterdam:
North-Holland, 1982.
12.
ShephardRW.Theory of cost and production functions.
Princeton:
Princeton University Press, 1970.
