Productivity Growth and the General X-factor in Austria's Gas Distribution

We estimate cost functions to derive productivity growth using a unique database on costs and outputs of essentially all regulated Austrian gas distribution companies over the period 2002–2013, covering the times before and after the introduction of incentive regulation in 2008. We estimate a concave relation between total costs and time, and a significant one-off but permanent reduction in real costs after an imposed reduction in granted costs in the course of the introduction of incentive regulation. Our results imply that technological opportunities were higher in the early years of the sample than in later years, and that productivity growth grinded to a halt from 2008 on. We conclude that technological opportunities are exhausted (for the time being) in the Austrian gas distribution sector giving rise to an optimal general X factor (X-gen) of zero for the foreseeable future.