Reducing the Asymmetry of Information Through the comparison of the Relative Efficiency of Several Regional Monopolies

Following the process initiated by Chile in the early 1980s, most countries in South America have undergone deep transformations in their electric industries. In this new playing field, the comparison of the relative efficiency of several regional monopolies seems to be a potentially valuable tool to reduce the asymmetry of information that is involved in the regulator-firm relationship. However, to be useful in the regulatory process, productive frontier estimates require a broad set of comparable firms and detailed information about them. This availability of data, although a necessary condition, is far from sufficient. One must also count on adequate techniques. In this paper we carry out an efficiency analysis in the electricity distribution sector in South America using different techniques, stating the conditions under which they become a useful tool in crafting an efficient regulation of the firms in that sector. Despite the particular results found here, the paper underscores the importance of conducting a consistency analysis whenever using efficiency measures in applied regulation.