The Impact of Industrial Reform on the Efficiency of the Korean Electricity Sector

Abstract

This paper examines the effect of electricity market reforms on the efficiency performance of the Korean electricity industry. By using survey data, due to the limited availability of firm-level data, this paper evaluates the efficiency impact of reform by using the fuzzy set theory that reflects the policy uncertainty of the Korean electricity sector. In particular, this theory is used to construct a precise metric of the importance of each indicator based on a survey of industry participants and scholars; the theory helps construct a relative weight of the importance of such indicators by permitting the conversion of uncertain subjective evaluations into practicable measurements. We then use the relative importance of each indicator resulting from this exercise to construct a weighted sum of an efficiency index for the post reform years of 2001-2008. We normalize the index so that the 2001 value is 1 and find that the value of the index has generally risen over the years to reach a value of 1.04 to 1.05 by the end of the study period. The overall results show that generation cost is the most important factor in efficiency-related decision-making processes and that efficiency values for the whole period tended to increase.