Reform and efficiency gains in the New Zealand electrical supply industry

As part of a general program of market-based reform, New Zealand transforme d the electrical supply industry from state-owned to commercially-oriented power companies. This paper tests the hypothesis that such privatization is efficiency-improving. A translog cost function is specified and estimated with controls for system (engineering) characteristics and environmental va riables, and it is found that the reforms had substantial cost-reducing eff ects. The reforms are found to have benefitted customers, with the real pri ce of electricity falling 16.4 percent, over the period.