Premium
The Managers versus the Consultants*
Author(s) -
GrifellTatjé Emili,
Knox Lovell C. A.
Publication year - 2003
Publication title -
scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/1467-9442.00008
Subject(s) - exploit , benchmark (surveying) , incentive , revenue , grid , electricity , economics , industrial organization , differential (mechanical device) , best practice , business , computer science , microeconomics , finance , engineering , management , computer security , geometry , mathematics , geodesy , aerospace engineering , electrical engineering , geography
Since engineering information is rarely available, standard practice is to benchmark managerial performance against best observed practice. We exploit a rare opportunity to benchmark managerial performance against engineering standards. Our managerial performance describes the activities of Spanish electricity distributors, and our engineering standards are obtained from an engineering grid created by an international consultancy. We find the consultancy's network to be much less costly to operate. When we decompose the cost differential, we find that the superior network design, combined with lower input prices, accounts for more than all of the predicted cost savings. However we also find that the managers are more cost efficient than the consultancy, presumably because they exploit their incentive to be cost efficient under a revenue cap regulatory regime.