A capability perspective on performance deficiencies in utility firms

Abstract

This paper proposes a capability-based framework to explain performance deficiencies in utility firms as a result of policy and regulatory changes. The framework complements conventional explanations such as transaction cost and agency approaches, which suggest that appropriate incentives and regulations increase the performance of public utilities after relatively short adaptation processes. In contrast, we argue that capability gaps – understood as an inadequate availability of competences, skills and experiences – tend to have long-lasting effects on firm performance. A crucial implication of the capability perspective is that regulatory interventions that create capability gaps at the firm level may affect utility performance – and the ability of infrastructure sectors to provide adequate services – more severely than expected by traditional approaches.