TY - JOUR
T1 - Using the Latent Class Approach to Cluster Firms in Benchmarking
T2 - An Application to the US Electricity Transmission Industry
AU - Llorca, Manuel
AU - Orea, Luis
AU - Pollitt, Michael
PY - 2014
Y1 - 2014
N2 - 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.
AB - 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.
KW - Electricity transmission
KW - Utilities regulation
KW - Latent class model approach
KW - Nonparametric analysis
KW - Electricity transmission
KW - Utilities regulation
KW - Latent class model approach
KW - Nonparametric analysis
U2 - 10.1016/j.orp.2014.03.002
DO - 10.1016/j.orp.2014.03.002
M3 - Journal article
VL - 1
SP - 6
EP - 17
JO - Operations Research Perspectives
JF - Operations Research Perspectives
SN - 2214-7160
IS - 1
ER -