The Impact of Quality of Service on Efficiency: Evidence from Iranian Electricity Distribution Companies

Due to the undesirable effects of incentive approaches on the service quality of electricity distribution companies, increasing attention is being paid to the quality aspect of their services in benchmarking models. Although the trade-off between service quality and cost, under the effect of implication of these approaches, does not apply to Iran, but the inclusion of service quality in efficiency analysis is still important theoretically, and also because of the possibility of such a trade-off between scale and service quality in a monopoly structure. This study examines the impact of service quality on the efficiency of Iranian electricity distribution companies, using the duration of interruption as a proxy variable for service quality, and its implication on the need to pay attention to quality in efficiency analysis and benchmarking model. Estimating the efficiency of the mentioned companies using the input-distance function method during 2011-2017 period shows that there is no statistically significant difference between the results of the efficiency analysis, with and without the inclusion of quality of service. Although the results support the pure cost approach to benchmarking, but it is still suggested that the impact of other aspects of service quality of Iranian electricity distribution companies be examined in the efficiency analysis.