Restructuring and Efficiency: Evidence from the Korean Electricity Market

Despite the prevalent analysis on the exercise of market power in the competitive generation sector, only few studies measuring efficiency gains of restructuring exist. In this paper, we estimate the empirical effects of restructuring on technical efficiency using data on the restructured Korean coal generation plants from 1990 to 2005. The estimation results from the Levinsohn and Petrin (2003), to account for the simultaneous issues between input and output decision, suggest that there exist 6.6% productivity gains associated with restructuring activities in 2001. This implies that the Korean Electric Power Company got rid of inefficiencies only after they divided the generation sector into six subsidiary firms.