Nonparametric measurement of productive efficiency in the presence of regulation

During the late 1970s and 1980s, volatility in the demand for natural gas in the United States created havoc in the industry's transmission sector. Managers of firms were presented with the task of improving productive efficiency in an uncertain and regulated industry. We measure the relative performance of 20 pipelines, using Data Envelopment Analysis to produce a regulation constrained minimum cost frontier. With the results we construct a Fisher Productivity Index. Results show that despite productive efficiency decline for most years, most firms experienced improvement in technical efficiency and technical progress in most years. Most of the productive efficiency decline was due to scale diseconomies.