Journal of Regulatory Economics

, Volume 6, Issue 4, pp 399-420

First online:

Private ownership form and productive efficiency: Electric cooperatives versus investor-owned utilities

  • Michael Dan BerryAffiliated withThree Empire State Plaza, New York State Department of Public Service

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Property rights theory predicts that private firms whose ownership shares are not tradable will not be managed efficiently. This paper tests that theory by comparing the costs of rural electric cooperatives (RECs) and investor-owned electric utilities (IOUs). Separate translog cost functions are estimated for the RECs and the IOUs. The estimated costs of producing several three-product output bundles are then compared across ownership form under the assumption that all firms face identical input prices. The empirical results suggest that the cooperative sector of the electric power industry produces its output in a much less efficient manner than does the investor-owned sector.