Effect of Cutting Subsidies on Technical Efficiency of Power Plants in Iran

There are many studies of the determinant factors of technical efficiency of power plants, but few studies have dealt with the efficiency effect of change in prices of inputs and outputs. In this paper we report on a study that uses the parametric stochastic frontier analysis to assess the effect of reduction of energy subsidies and resultant changes in input and output prices on the efficiency of power plants. The results show that while the direct effect of subsidy reform has not been significant at the macro level in Iran, increasing the input-to-output price ratio of power plants has led to significant increases in the technical efficiency of power plants, especially those operated by the private sector