The European energy sector, particularly the market for electricity distribution, is entering a period of major transformation. Moving from a historically stable setting focused on grid maintenance and harmonization, the sector now faces a predicted unprecedented demand growth driven by electrification and new energy-intensive industries. Meeting this challenge appears to require major investments in grid infrastructure. Given the monopolistic nature of electricity distribution system operators (DSOs), it is essential to ensure that such investments are efficiently employed. Moreover, as secure and affordable electricity supply underpins economic competitiveness and social welfare, evaluating regulatory effectiveness and addressing information asymmetries between DSOs and regulators remain vital.

This thesis contributes to the understanding of DSO performance across Denmark, Sweden, Norway, Finland, and Iceland, by encompassing five distinct papers. The first paper, Rasmussen (2025a), describes the data collection and harmonization process for an empirical cross-country dataset used throughout the subsequent papers. The second paper, Rasmussen (2025b), identifies both persistent structural (exogenous) and transient (endogenous) cost inefficiencies across DSOs in all five countries. The third paper, Qasim et al. (2026), shows that ownership structures vary widely but that shifting ownership does not consistently improve efficiency, though it may affect strategic and operational priorities. The fourth paper, Rasmussen et al. (2026), finds that many DSOs operate below optimal scale size, suggesting unrealized economies of scale, which could be realized through merger encouragement. Finally, the fifth paper, Rasmussen (2025c), shows that Danish revenue regulation appears to have modestly reduced overall DSO costs but has not consistently improved cost efficiency within the regulatory time period examined.

Together, these papers offer three key policy insights: 1) Cost inefficiencies persist, suggesting that existing revenue or price cap mechanisms, particularly in Denmark, may provide insufficient motivation for sustained efficiency gains. However, when imposed, such frameworks should also account for structural factors beyond DSOs’ control. 2) Further mergers could improve market efficiency, but incentives must avoid promoting over-consolidation beyond optimal scale size. 3) Since ownership type alone does not appear as a driver of efficiency, regulators should focus on operational performance rather than ownership form.

In Sweden, as in many other countries, the public sector has implemented merger policies to exploit economies of scale and improve efficiency. In previous work, Agrell et al. (Annals of Operations Research, 288:653–679, 2020) we showed that mergers had a positive impact on efficiency. In this study, we investigate the economies of scale argument for mergers. To measure scale elasticity, we estimate a global translog stochastic frontier input distance function covering the years 2000–2016. Our results show that the merger strategy is well supported in empirical results. In the early 2000s, the majority of district courts (94%) operated under increasing returns to scale (IRS), meaning that they were too small compared to optimal scale. About 3% operated under decreasing returns to scale (DRS) and 3% operated at optimal scale. In 2016, around 40% had targeted optimal scale, but 20% were operating at DRS, indicating that they had become too large. These findings show both the potential and the limits of public-sector mergers in demand-driven services such as courts. 

Electricity distribution system operators (DSOs) in Denmark, Norway, Sweden, Finland, and Iceland, along with numerous other nations, operate as local natural monopolies. Regulatory bodies in each of these five countries are responsible for overseeing and regulating the local markets to offset this inherent market failure. Despite the many similarities in regulation between countries, cross-country studies on DSO performance are a rarity in the literature. This study addresses this gap by employing a panel data stochastic frontier analysis (SFA) to examine differences in cost efficiency levels between the aforementioned five countries. This includes the short-term adjustable time-varying efficiency, often called the managerial efficiency, endogenous to each DSO and the short-term unadjustable time-invariant efficiency, often called the organizational efficiency, exogenous to each DSO. The results of the analysis indicate vast differences in operational environments both within and between countries. When controlled for, efficiency distributions across countries mostly appear to be similar, indicating no significant difference in performance capabilities between DSOs across the countries examined.

In numerous countries, electricity Distribution System Operators (DSOs) function as local monopolies. To counter potential abuse of monopoly power, regulators, especially in Europe, often employ mechanisms like DSO-specific revenue caps to encourage cost reductions among regulated DSOs. Despite its widespread use, literature concerning ex-post evaluation of the effectiveness of revenue cap regulation, particularly divided into its individual components, is lacking. This paper offers two contributions: First, it shows the advantages of utilizing a semi-parametric panel data StoNED framework methodology as a tool for assessing the impact of revenue caps by evaluating the cost efficiency of regulated DSOs in its individual components. Second, the effectiveness of revenue cap regulation is assessed using the Danish DSOs as a case study. The empirical analysis finds evidence that part of the revenue cap incentive scheme appears to promote cost reductions among regulated Danish DSOs.JEL Classification: C14, C23, C51, L43, L51, L94, L98