Adapting Productivity Theory to the Quadratic Cost Function. An Application to the Spanish Electric Sector

In this article we have adapted productivity analysis to the case of a cost model using a quadratic cost function and discrete data. The main theoretical result is a productivity index that can be decomposed into modified versions of the contribution of technical change and the effect of the variations in the scale of production. This framework has been applied to the study of the Spanish electric sector from 1985 to 1996, during which relevant regulatory changes were introduced in order to increase productivity. For this, a normalized quadratic cost function was estimated. The results show important productivity gains with both technical change and scale effect playing important roles. Copyright Kluwer Academic Publishers 2003