Economic uncertainty and Sticky Costs

an analysis of electricity distribution companies in Brazil (2011-2023)

Abstract

This study investigates the effects of economic uncertainty, measured using the Economic Uncertainty Indicator for Brazil (IIE-Br) as a proxy, on the cost behavior of electricity distribution concessionaires in Brazil between 2011 and 2023. To this end, the model proposed by Anderson et al. (2003) was adopted and estimated through balanced panel data regressions, with econometric tests applied to assess the adequacy and assumptions of the models. The results suggest asymmetric behavior in total operating costs, although without statistical robustness, with a sign consistent with the phenomenon known as anti-sticky costs. In substantive terms, on average, a 1% reduction in net revenue is associated with a 0.91% decrease in total operating costs, a magnitude greater than the 0.73% increase observed in periods of revenue growth. Although the marginal effect of the economic uncertainty proxy (IIE-Br) was not statistically significant, its interaction with the variable indicating a reduction in net sales revenue (NSR) indicates that, in periods of greater economic uncertainty, the anti-sticky behavior of total operating costs becomes statistically significant. In addition, the crises faced by the electricity sector exhibit moderating effects, suggesting that, during crisis periods, costs become more sensitive to revenue variations. Conversely, when manageable operating costs are considered in isolation, no statistically significant associations are identified with variations in NSR, economic uncertainty, or sectoral crises. Thus, this result suggests that the aggregate measure of distribution companies’ manageable operating costs may not adequately capture short-term managerial adjustments.