Work

Using the latent class approach to cluster firms in benchmarking: An application to the US electricity transmission industry

Year: 2014

Type: article

Abstract: In this paper we advocate using the latent class model (LCM) approach to control for technological differences in traditional efficiency analysis of regulated electricity networks. Our proposal relies on the fact that latent class models are designed to cluster firms by uncovering differences in technology parameters. Moreover, it can be viewed as a supervised method for clustering data that takes into account the same (production or cost) relationship that is analysed later, often using nonparametric frontier techniques. The simulation exercises show that the proposed approach outperforms other sample selection procedures. The proposed methodology is illustrated with an application to a sample of US electricity transmission firms for the period 2001–2009.

Source: Operations Research Perspectives

DOI: 10.1016/j.orp.2014.03.002

Authors: Manuel Llorca, Luis Orea, Michael G. Pollitt

Institutions: Universidad de Oviedo, University of Cambridge

Language: English

Topic: Efficiency Analysis Using DEA

Subfield: Management Science and Operations Research

Field: Decision Sciences

Domain: Social Sciences

SDG: Industry, innovation and infrastructure

Open Access status: gold

Estimated APC paid: $1,790