The Impact of Quality of Service on Efficiency: Evidence from Iranian Electricity Distribution Companies

Document Type : Research Paper


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

2 Associate Professor of Economics University of Tabriz

3 M.A. Student of Economic Development and Planning University of Tabriz


Due to the undesirable effects of incentive approaches on the service quality of electricity distribution companies, increasing attention is being paid to the quality aspect of their services in benchmarking models. Although the trade-off between service quality and cost, under the effect of implication of these approaches, does not apply to Iran, but the inclusion of service quality in efficiency analysis is still important theoretically, and also because of the possibility of such a trade-off between scale and service quality in a monopoly structure. This study examines the impact of service quality on the efficiency of Iranian electricity distribution companies, using the duration of interruption as a proxy variable for service quality, and its implication on the need to pay attention to quality in efficiency analysis and benchmarking model. Estimating the efficiency of the mentioned companies using the input-distance function method during 2011-2017 period shows that there is no statistically significant difference between the results of the efficiency analysis, with and without the inclusion of quality of service. Although the results support the pure cost approach to benchmarking, but it is still suggested that the impact of other aspects of service quality of Iranian electricity distribution companies be examined in the efficiency analysis.


Main Subjects

  1. Aigner, D., Lovell, C. K., & Schmidt, P. (1977). Formulation and estimation of stochastic frontier production function models. Journal of econometrics, 6(1), 21-37.‏
  2. Ajodhia, V., Petrov, K., & Scarsi, G. C. (2004, October). Economic benchmarking and its applications. In Proceedings of the 3rd International Conference on Applied Infrastructures Research.‏
  3. Alimohammadlou, M., Damankeshan, A., & Motafef, Z. (2017). Measurement of Relative Efficiencies of Iran’s Electricity Distribution Companies: Data Envelopment Analysis with Double Frontier. Iranian Electric Industry Journal of Quality and Productivity, 5(2), 108-117 (In Persian) .
  4. Atkinson, S. E., & Primont, D. (2002). Stochastic estimation of firm technology, inefficiency, and productivity growth using shadow cost and distance functions. Journal of Econometrics, 108(2), 203-225.‏
  5. Baradaran, V., & Yaghoubi, N. (2016). Evaluate the Efficiency of Iranian Electric Power Distribution Companies by Stochastic Nonparametric Envelopment of Data (StoNED) Approach. Iranian Electric Industry Journal of Quality and Productivity, 4(2), 15-26 (In Persian).
  6. Chen, W., Fan, J., Du, H., & Zhong, P. (2023). Investment strategy for renewable energy and electricity service quality under different power structures. Journal of Industrial and Management Optimization, 19(2), 1550-1572.‏
  7. Laurits, R. C., Dale, W. J., & Lawrence, J. L. (1973). Transcendental logarithmic production frontiers. The Review of Economics and Statistics, 55(1), 28.‏
  8. Coelli, T. J., Rao, D. S. P., O'Donnell, C. J., & Battese, G. E. (2005). An introduction to efficiency and productivity analysis. springer science & business media.
  9. Cooper, W. W., Seiford, L. M., & Tone, K. (2006). Introduction to data envelopment analysis and its uses: with DEA-solver software and references. Springer Science & Business Media.
  10. Corton, M. L., Phillips, M. A., & Zimmermann, A. (2019). Aligning Quality Incentives and Tariff Adjustments: The Case of the Brazilian Electricity Distribution Sector. Review of Network Economics, 18(1), 35-62.
  11. Corton, M. L., Zimmermann, A., & Phillips, M. A. (2016). The low cost of quality improvements in the electricity distribution sector of Brazil. Energy policy, 97, 485-493.
  12. Etezadi, S., Safari, H., Zandieh, M., Sadeghimoghadam, M., & Jafarnejad, A. (2022). Evaluating service productivity via combining approach FBWM & DEA-EEP (Case study: Mazandaran Electricity Distribution Company). Industrial Management Journal, Available Online from 21 April 2022 (In Persian).
  13. Falahi, M., & Ahmadi, V. (2006). Measuring Cost Efficiency of Electricity Distribution Companies in Khorasan Province. Iranian Journal of Economic Research, 8(28), 123-137 (In Persian).
  14. Falahi, M., Kazemi, M., & Seyedzadeh, M. (2012). Investigating the Effective Factors on the Efficiency of Iran's Regional Electricity Companies with an Emphasis on Information Technology. Macroeconomics Research Letter, 6(12), 85-106 (In Persian).
  15. Fare, R., Primont, D., & Tauchen, H. (1996). Multi-output production and duality: Theory and applications. Journal of Economic Literature, 34(3), 1343-1344.
  16. Fujii, H., & Kaneko, S. (2011). Operational performance of regional electricity distribution in Indonesia. Journal of International Development and Cooperation, 18(1), 23-30.
  17. Fumagalli, E., Schiavo, L., & Delestre, F. (2007). Service quality regulation in electricity distribution and retail. Springer Science & Business Media.
  18. Ghasemi, M., Dashti, R., & Amirioun, M. H. (2021). A hierarchical approach to designing an electricity distribution reward‚Äźpenalty scheme for service quality improvement. International Transactions on Electrical Energy Systems, 31(12),
  19. Ghasemi, M., & Dashti, R. (2016). Assessment of investment decisions on the reliability of the electricity distribution system under reward and penalty scheme. In the Power System Conference. Tehran (In Persian).
  20. Ghotboddini, R., & Toossian Shandiz, H. (2021). Evaluating the Efficiency and Benchmarking of Regions in an Electricity Distribution Company Using a Public Lighting Asset Management Model. Iranian Electric Industry Journal of Quality and Productivity, 10 (2), 1-13 (In Persian).
  21. Giannakis, D., Jamasb, T., & Pollitt, M. (2005). Benchmarking and incentive regulation of quality of service: an application to the UK electricity distribution networks. Energy policy, 33(17), 2256-2271.
  22. Goerlich, R., & Ruehrnoessl, U. (2017). Quality and Efficiency—A DEA Based Analysis of the Austrian Electricity Distribution Sector. Data Envelopment Analysis Journal, 3(1–2), 151-195.
  23. Greer, M. (2010). Electricity cost modeling calculations, Academic Press.
  24. Growitsch, C., Jamasb, T., Müller, C., & Wissner, M. (2010). Social cost-efficient service quality—Integrating customer valuation in incentive regulation: Evidence from the case of Norway. Energy policy, 38(5), 2536-2544.
  25. Growitsch, C., Jamasb, T., & Pollitt, M. (2009). Quality of service, efficiency and scale in network industries: an analysis of European electricity distribution. Applied Economics, 41(20): 2555-2570.
  26. Haghifam, M. R., Mostaghim, N., & Simab, M. (2016). Multi-level Efficiency Benchmarking of Electrical Distribution Companies. Iranian Electric Industry Journal of Quality and Productivity, 5(1), 58-67 (In Persian).
  27. Hajargasht, G., Coelli, T., & Rao, D. P. (2008). A dual measure of economies of scope. Economics Letters, 100(2), 185-188.
  28. Jamasb, T., & Pollitt, M. (2007). Incentive regulation of electricity distribution networks: Lessons of experience from Britain. Energy Policy. 35(12), 6163-6187.
  29. Jamasb, T., & Pollitt, M.G. (2011). The future of electricity demand: customers, citizens and loads. Cambridge, UK: Cambridge University Press.
  30. Khodadad Kashi, F., Oshani, M., Ghazizadeh, M. S., & Heydari, K. (2019). Regulation of Electricity Distribution Companies in Iran Based on Quality and Productivity. Economics Research, 19(75), 1-38 (In Persian).
  31. Khosravi, M., Shahroodi, K., Amirteimoori, A., & Delafrooz, N. (2022). Developing an Analytical-Mathematical Model for Evaluating the Efficiency of the Power Production, Transmission, and Distribution Companies in the Electric Power Industry of Iran: An Network Data Envelopment Analysis (NDEA) Approach with Undesirable Outputs. Industrial Management Journal, 14(2), 220-249 (In Persian).
  32. Kiani, P. (2018). Economic Regulation Design in the Electricity Distribution Sector of Iran. Iranian Energy Economics (Unpublished doctoral dissertation). University of Tabriz, Tabriz (In Persian).
  33. Korhonen, P. J., & Syrjänen, M. J. (2003). Evaluation of cost efficiency in Finnish electricity distribution. Annals of Operations Research, 121(1), 105-122.
  34. Kumbhakar, S., & Lovell, K. (2000). Stochastic frontier analysis. Cambridge UK: Cambridge University Press.
  35. Kwoka Jr, J. E. (2005). The comparative advantage of public ownership: Evidence from US electric utilities. Canadian Journal of Economics/Revue canadienne d'économique, 38(2), 622-640.
  36. Meeusen, W., & van Den Broeck, J. (1977). Efficiency estimation from Cobb-Douglas production functions with composed error. International economic review, 18(2), 435-444.
  37. Mirza, F. M., & Mushtaq, I. (2022). Estimating the marginal cost of improving services quality in electricity distribution utilities of Pakistan. Energy policy, 167, 113061.
  38. Muller, R. B., & Rego, E. E. (2021). Privatization of electricity distribution in Brazil: Long-term effects on service quality and financial indicators. Energy policy, 159, 112602.
  39. Nsabimana, R. (2020). Quality of service in the electricity sector, a benchmarking study on Eastern Africa Power Pool. Paper presented at the Présentation des Travaux des Doctorants.
  40. Nsabimana, R., Gautier, A., Nsabimana, S., & Perelman, S. (2021). The cost of quality of service improvement in electricity distribution in Burundi: a parametric shadow price approach. Paper presented at the PhD Seminar.
  41. Pourebadollahan Covich, M., Fallahi, F., Heydari, K., & Kiani, P. (2017). Efficiency Correction of Iran's Electricity Distribution Companies by Environmental Factors: An Application of Two-stage (DEA and Tobit) Analysis. Iranian Energy Economics, 6(23), 59-88 (In Persian).
  42. Pourebadollahan Covich, M., Nobahar, E., Sojoodi, S., & Khalafi, R. (2021). Incentive Regulation of Investment Costs: The Case Study of Iranian Electricity Distribution Companies. Econometric Modelling, 4 (23), 151-184 (In Persian).
  43. Pourebadollahan Covich, M., Nobahar, E., Sojoodi, S., & Khalafi, R. (2021). Efficiency and Scale: Evidence from Iran's Electricity Distribution Companies. Iranian Energy Economics, 10(39), 71-97 (In Persian).
  44. Prettico, G., Marinopoulos, A., & Vitiello, S. (2022). Guiding electricity distribution system investments to improve service quality: A European study. Utilities Policy, 77, 101381.
  45. Radsar, M., Kazemi, A., Mehrgan, M., & Razavi Hajiagha, H. (2021). Designing an algorithm based on network data envelopment analysis with desirable and undesirable indicators for the evaluation of the Iranian power industry. Industrial Management Journal, 13(1), 1-26 (In Persian).
  46. Rezaei, A. (2013). Efficiency and Productivity Analysis in Iranian Electricity Distribution Companies: Slack Based Model (SBM) Approach. (2013). Journal of Economic modeling Research, 4(13), 119-146 (In Persian).
  47. Shephard, R. W. (1953). Theory of cost and production functions. Princeton, USA: Princeton University Press.
  48. Salimi, M., & Keramati, M. A. (2016). Evaluation and Distribution of technical efficiency of regional Electricity companies with a three-stage DEA approach. Iranian Electric Industry Journal of Quality and Productivity, 4(2), 37-48 (In Persian).
  49. Siregar, W. S. P., Mahrinasari, M., & Panjaitan, D. R. (2022). The Influence of Service Quality on Satisfaction Level and Company Image Using Smart Electricity Based on Household Segment. Budapest International Research and Critics Institute-Journal (BIRCI-Journal), 5(4), 31561-31572.
  50. Sokhanvar, M., Sadeghi, H., Assari, A., Yavari, K., & Mehregan, N. (2012). Structural Analysis and Efficiency Trend of Electricity Distribution Companies in Iran by Using Window Data Envelopment Analysis. Economic Growth and Development Research, 1(4), 182-145 (In Persian).
  51. Sokhanvar, M., Sadeghi, H., Assari, A., Yavari, K., & Naderan, E. (2012). Determinating the Efficiency of Electricity Distribution Companies of Iran and Factors Affecting it By Using Data Envelopement Analysis and Two - Stage Approach. Journal of Economic Research (Tahghighat- E- Eghtesadi), 47(2), 21-39 (In Persian).
  52. Yu, W., Jamasb, T., & Pollitt, M. (2009). Does weather explain cost and quality performance? An analysis of UK electricity distribution companies. Energy policy, 37(11), 4177-4188.
  53. Yuan, P., Pu, Y., & Liu, C. (2021). Improving electricity supply reliability in China: Cost and incentive regulation. Energy, 237, 121558