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Abstract

The privatization of the water industry has aroused interest in comparing the performance of public vs. private water companies. However, little research has been conducted to compare the performances of full private (FPWCs) and concessionary water companies (CWCs). This study estimates and compares the productivity growth and its drivers (efficiency, technical and scale change) for a sample of Chilean FPWCs and CWCs over the 2007–2015 period using the input distance function. Both types of water companies showed deteriorations in productivity growth, with CWCs exhibiting higher rates of negative productivity growth than FPWCs. For FPWCs, any gains in efficiency and scale were outstripped by negative technical change. CWCs did not improve their performance in any of the three components of productivity change. The comparison of productivity change between FPWCs and CWCs is essential to support decision-making therefore, this study is of great interest for policymakers worldwide who are developing policies aimed at privatizing water companies.

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... Like England and Wales, the Chilean water industry is fully privatized and its privatization took place during the years 1998-2004 [17]. (Two forms of companies were formed namely: i) full private water companies (FPWCs) where the full ownership and operation of infrastructure is undertaken by private consortiums for an infinite time period, and ii) concessionary water companies (CWCs) where the water services are provided by private consortiums for a limited time period (e.g., 30 years) through a concessionary contract [18]. A small proportion of customers is provided by a public water company as well [19]. ...
... Studies by Molinos-Senante and Sala-Garrido [17] and Sala-Garrido et al. [19,24] used non-parametric techniques to study the productivity change of FPWCs and CWCs, i.e., the public water company was not integrated in the assessment. Studies by Molinos-Senante et al. [18,25] used parametric techniques to study the performance of the private Chilean water industry. The main disadvantage of non-parametric techniques over parametric techniques lies in their inability to separate noise from inefficiency. ...
... The main disadvantage of non-parametric techniques over parametric techniques lies in their inability to separate noise from inefficiency. However, Molinos-Senante et al. [18,25] did not study the concept of economies of scale and scope between the provision of water and wastewater services. Our study aims to fills this gap in literature. ...
Article
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Evaluating the performance and analyzing the cost drivers of water utilities is of great interest for water regulators and water sector managers. This study uses a quadratic cost function to investigate the existence of economies of scale and scope in the Chilean water and sewerage industry over the period 2010–2017. We also estimate and decompose productivity growth into technical change and scale efficiency change. Technical change is further broken into pure, non-neutral and scale-augmenting technical change. The results indicate that cost savings can be achieved by increases in the scale of production and the separation of water and sewerage services. Productivity progressed favorably throughout the whole period at an annual rate of 8.4%, which was attributed to the scale effect, the adoption of new technologies and a good allocation of resources. Some policy implications are finally discussed based on our findings.
... Full private and concessionary water companies were established as a result of this process 10 . The first type of water companies provides water and wastewater services for an indefinite time period, whereas concessionary companies are in charge of operating and maintaining the infrastructure through a 30-year contract 11 . Finally, the assessment of performance in water industries in developing economies has received limited research 12 . ...
... Finally, the assessment of performance in water industries in developing economies has received limited research 12 . Previous studies on the Chilean water industry used parametric (econometric) techniques to compare costs and efficiency among water companies 10,11,13 . However, the limitation of parametric methods was the a priori assumption of the functional form for the underlying technology. ...
... Being natural monopolies, an economic regulator was set up to monitor financial and quality of service performance and set tariffs 45 . The data employed to estimate OE, QAE, and O&QAE came from the website of the economic regulator, Superintendencia de Servicios Sanitarios (SISS) 11 . The inputs, desirable and undesirable outputs were chosen based on past studies in the water industry and the available statistical information 12,[46][47][48] . ...
Article
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The path to a sustainable management of the urban water cycle requires the assessment of both operational and quality-adjusted efficiency in a unified manner. This can be done by the use of non-radial Data Envelopment Analysis models. This study used Range Adjusted Measure models to evaluate the operational, quality-adjusted, and operational & quality-adjusted efficiency (O&QAE) scores of the Chilean water industry including water leakage and unplanned interruptions as undesirable outputs. It was found that on average water utilities presented large O&QAE scores over time. The mean O&QAE score was 0.964 which means that water utilities could further reduce costs and undesirable outputs by 3.6% on average, while trying to expand the scale of operation. This finding suggests that excellent quality-adjusted efficiency at an efficient expenditure could be feasible. It was also evidenced that customer density, mixed water resources, and ownership influenced the O&QAE of Chilean water companies.
... Previous studies on this topic (e.g. Saal et al. 2007;Portela et al. 2011;Molinos-Senante et al. 2018; Molinos-Senante and Maziotis 2019a) have decomposed TFP change into three components or drivers: (i) technical change (TC); (ii) technical efficiency change (TEC); and (iii) scale efficiency change (SEC). However, Balk (2001) revealed that there is no unique way of decomposing TFP change. ...
... The estimation of the MPI in Eq. (1) is done using parametric techniques that require a pre-defined functional form of the distance function for estimation. Following past practice (see Coelli et al. 2003;Saal et al. 2007;Molinos-Senante et al. 2018, we define the following translog input distance function for N (i : 1, …, N ) water companies observed in T (t : 1, …, T) time periods and M (m : 1, …, M) outputs and K (k : 1, …, K) inputs: ...
... Following past practice (Saal et al. 2007;Molinos-Senante et al. 2018, we included χ exogenous variables in our model which are represented by the term . Intercept parameter α i accounts for heterogeneity of the analyzed companies. ...
Article
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In monopoly services that provide drinking water, it is of paramount importance to evaluate the total factor productivity (TFP) change of water companies. Most of the previous studies have computed the Malmquist productivity index (MPI) by applying non-parametric methods. By contrast, following a pioneering approach, in this study, we estimated the MPI using a parametric method that allows us to decompose TFP change into a larger number of drivers, including exogenous and quality of service variables. An empirical application for the Chilean water industry over 2007–2015 was conducted. We found that productivity change estimates were variable across years, differentiating a first period (2007/11) in which productivity declined and a second period (2011/15) in which TFP notably improved. In both periods, scale efficiency change and input mixed effect were the main drivers of productivity change, illustrating the importance of operation scale in water companies’ performance. The decomposition of the TFP change in a large number of drivers is essential to propose incentives and measures to promote productivity across time.
... Many countries have undertaken privatization to stimulate competition across the companies, and privatization is a broad term including the types of regulatory mechanisms, such as rate of return regulation, price-cap regulation, incentive regulation, and sunshine regulation. In the case of Chilean water and sewage companies, the works by Molinos-Senante and Sala-Garrido (2016b) and Molinos-Senante et al. (2018b) found that the efficiency and productivity of fully privatized companies are performed better than the concessionary companies after privatization. For the English and Welsh water industry, Parker (2001, 2004) and Saal et al. (2007) highlighted that the efficiency and productivity of the industry improved after the regulations, but not with privatization. ...
... The majority of applications of this approach are covered in developed countries for assessing the cost efficiency of the water and sewage industry. In our literature collected, the water and sewage industries of several developing countries have been evaluated through this approach, such as Chile (Ferro and Mercadier, 2016;Molinos-Senante et al., 2018b; Molinos-Senante and Maziotis, 2019), Venezuela (Higuerey et al., 2017), Brazil (Ferro et al., 2014), Sri Lanka (Dharmaratna and Paranis, 2012), and Africa (Buafa, 2015). Recently, many studies have integrated multiple input and output variables as well as explanatory variables into the stochastic input distance function for assessing industry performance. ...
... There are several studies (e.g., De Witte and Marques, 2010a;Pointon and Matthews, 2016;Villegas et al., 2019) also considered water leakage (referred to one of the components in NRW) as the determinant for the industry performance. In Chile, studies (e.g., , 2018a, 2018b found that water loss statistically significantly negatively influences the efficiency of the water and sewage industry. The findings are consistent with previous studies for other countries: Mexico (Anwandter and Ozuna, 2002), and Venezuela (Higuerey et al., 2017). ...
Article
The research on benchmarking analysis of the water and sewage industry has been expanding over the years. Water utility benchmarking analysis is crucial for mitigating the stress associated with classic issues, including ownership status, deregulation policies, and quality of service. A significant body of literature reviews has focused on the choice of quantitative tools and the issues addressed by studies; thus, the bibliometric analysis method is timely. In this study, bibliometric analysis was employed for the first time to review 142 scientific articles on benchmarking analysis of the water and sewage industry based on the Scopus database during the years 2000–2019. The publication pattern confirms that the total number of related publications increased over the study period. Although the studies are dominated by authors from developed countries and they have a wide range of international collaboration, some authors from developing countries have also been actively publishing in recent years. The findings of research hotspot suggest that more studies should be conducted to address the issues of the water and sewage industry in developing countries. Moreover, a robust method is suggested to be included in the development of modeling frameworks, and it would be interesting to incorporate the undesirable outputs and quality of service. Several determinants of the water industry performance are used in the previous studies but there has been little or no agreement on the relationship between these explanatory variables and water utility’s performance. There is no one size fits all and the relationship between determinants and the water utility’s performance, to some extent, varies influenced by other non-discretionary factors. To conclude, this review will benefit scholars and practitioners by providing deeper insight into the publication trend in this field and the research gaps on the issues addressed, particularly in policy and regulation.
... Results from this study are consistent with previous studies by Ferro and Mercadier (2016) and Molinos-Senante et al. (2018, 2019 who reported high levels of efficiency for the Chilean water industry. These studies found an efficiency score of 0.91 on average for the private utilities. ...
... The differences in the efficiency scores between those studies and our study lies on the methodology employed. We used a non-parametric approach which does not require a functional specification for the underlying technology whereas the studies by Ferro and Mercadier (2016) and Molinos-Senante et al. (2018, 2019 employed econometric techniques by specifying a Cobb-Douglas and translog function for the production technology. ...
Article
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Getting a good understanding regarding the economic and environmental performance of water utilities is of great importance to achieve the goal of an efficient and sustainable industry. In this study, we apply the range adjusted measure (RAM) data envelopment analysis (DEA) model to evaluate the integrated (production and environmental) efficiency of several water utilities located in Chile. Integrated efficiency is evaluated using the concepts of natural and managerial disposability. This approach further allows us to quantify the contribution of each input and undesirable product on efficiency scores. The results highlighted that the Chilean water industry showed high levels of production and environmental efficiency over time. Under natural disposability, water utilities could control production costs to reduce water leakage and unplanned water supply interruptions by 3.3% on average. Under managerial disposability, water utilities could further cut down undesirable outputs by 1.4% on average by adopting best managerial practices. On average, potential savings in operating costs, employment, water leakage, and unplanned water supply interruptions were higher for concessionary utilities as they showed slightly lower efficiency scores than full private utilities.
... The selection of inputs and outputs was based on previous studies in the Chilean water industry and elsewhere. Following past evidence (Molinos-Senante et al., 2016a, 2016b, 2018aPinto et al., 2017), two outputs and two inputs were used to estimate the shadow price of unplanned water supply interruptions. The two outputs used were i) the volume of water delivered, expressed in thousands of cubic meters of water produced annually, and ii) the number of customers with access to wastewater treatment services. ...
... As shown in Fig. 2, the average technical efficiency (from 2007 to 2017) of the water and sewerage companies was at 95%, implying that the efficiency could be further improved by reducing the inputs by 5% for a given level of output. This finding suggests that the Chilean water and sewerage industry is mature (Ferro and Mercadier, 2016;Molinos-Senante et al., 2018a). On average, the public company seemed to be slightly more technically efficient (average technical efficiency of 0.955) than the full private and concessionary companies (average technical efficiencies of 0.950 and 0.947, respectively). ...
Article
Evaluating changes in profit, price and productivity over time can be of great importance for regulated water industries. We investigate the drivers of profit, price (capital, labour and other inputs) and productivity change (cost efficiency change, technical change and scale effect) and the recipients of productivity change (consumers, the business itself, employees and other resource suppliers) of the English and Welsh water and sewerage companies over the period of 1995–2016. The results indicate that the profit decreased over time due to the negative quantity effect, which offset the positive price effect. A further decomposition of the quantity effect illustrates the negative impact of the cost efficiency change and scale effect on profits. Moreover, the financial winners since the water companies’ privatization have been the employees and the suppliers of other inputs, whereas the customers of the water and sewerage services and the business itself have not benefited as much.
... The selection of inputs and outputs was based on previous studies in the Chilean water industry and elsewhere. Following past evidence (Molinos-Senante et al., 2016a, 2016b, 2018aPinto et al., 2017), two outputs and two inputs were used to estimate the shadow price of unplanned water supply interruptions. The two outputs used were i) the volume of water delivered, expressed in thousands of cubic meters of water produced annually, and ii) the number of customers with access to wastewater treatment services. ...
... As shown in Fig. 2, the average technical efficiency (from 2007 to 2017) of the water and sewerage companies was at 95%, implying that the efficiency could be further improved by reducing the inputs by 5% for a given level of output. This finding suggests that the Chilean water and sewerage industry is mature (Ferro and Mercadier, 2016;Molinos-Senante et al., 2018a). On average, the public company seemed to be slightly more technically efficient (average technical efficiency of 0.955) than the full private and concessionary companies (average technical efficiencies of 0.950 and 0.947, respectively). ...
Article
Water companies are responsible for supplying water to customers 24 h per day. However, due to extreme natural events and/or anthropogenic actions, water companies suffer from unplanned water supply interruptions, which directly impact customers and incur expenses by the companies. In this study, for the first time, we estimated the shadow price (or implicit cost) of unplanned water supply interruptions using stochastic frontier techniques for a sample of 21 Chilean water companies over the period of 2007–2017. The results indicate that, on average, the Chilean water company needed to spend an extra 2.547€ in operating expenditures to avoid 1 h of interruption. Average shadow price of unplanned water supply interruptions was higher for concessionary and full private companies than public ones. These findings demonstrate that the regulatory agency may need to promote effective policies and incentives to ensure and improve the continuity of the water supply. This is very relevant to the Chilean water industry, where there is an ongoing policy debate regarding the use of penalties and compensations as an incentive to avoid unplanned water supply interruptions.
... Although a large body of literature exists regarding the conventional productivity assessment in the drinking water and sanitation sector (Lannier and Porcher 2014;Molinos-Senante et al. 2018a;Molinos-Senante et al. 2017;Ananda 2013;Cunningham 2013;Sala-Garrido et al. 2019), studies that integrate environmentally undesirable outputs into productivity assessments are relatively scarce (Ananda and Hampf 2015;Molinos-Senante et al. 2014). It is noteworthy that efforts have been made in this regard in developing countries as well. ...
... The second was the number of treatment works when water is taken from surface water resources [62]. Finally, population density was defined as the ratio of population to the length of water mains [65,66]. Table 1 depicts the descriptive statistics of the variables used in the study. ...
Article
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Analyzing costs and greenhouse gas (GHG) emissions could be of great importance for the water utilities to supply water services in a healthy and sustainable manner. In this study, we measured the eco-efficiency of several water utilities in England and Wales by incorporating GHG as an undesirable output. For the first time, we evaluated the eco-efficiency of the water production process using robust cross-efficiency data envelopment analysis (DEA) techniques. The further use of clustering and regression techniques allowed us to better understand the drivers of eco-efficiency. The results showed that the mean eco-efficiency of the water sector was 0.748, which indicates that costs and GHG emissions could be reduced by 25.2% to generate the same level of output. Large water companies with high energy costs and levels of GHG emissions belonged to the less eco-efficient group. Environmental factors related to density, topography, and treatment complexity further impacted eco-efficiency. Finally, we linked our results to the regulatory cycle and discuss some policy implications.
... For developing countries, Molinos-Senante and Sala-Garrido (2015) reported that productivity change in the Chilean water sector decreased after privatization, and only privatized water and sewerage operators increased productivity, which is mainly attributable to technical improvements. Molinos-Senante et al. (2018b) concluded that fully private water operators exhibited a lower rate of negative productivity growth than concessionary water operators. Analyzing the Brazilian water sector, Carvalho and Sampaio (2015) showed an increase in productivity growth that was primarily attributable to technological progress. ...
Article
We apply the bootstrap Malmquist-Luenberger productivity index (MLPI) to measure the total factor productivity (TFP) growth for 14 water operators in Malaysia during the years 2000-2017. The analysis confirms that Malaysia's water sector experienced a deterioration in average productivity of 1.21% per year, attributed mainly to technological regression. Before the regulatory reform, the average productivity of water operators improved and was positively influenced by efficiency change. After the reform, the water operators suffered a decline in TFP growth due to decreased efficiency and technical change. The inefficient utilization of capital expenditure and aging water infrastructure are possible reasons for this effect. Regulatory reform is necessary but insufficient to improve the productivity growth of Malaysia's water sector.
... In order to estimate the cost frontier model in Equation (1) we needed to specify a cost function. The translog specification was chosen because it is a second-order flexible form, takes into account the different size of the WUs, is widely used in the literature, and is easy to estimate [27,30]. Due to the absence of data for input prices, we specify the following frontier cost function [31][32][33][34]: ...
Article
Full-text available
The management of municipal solid waste sector is crucial for a sustainable circular economy. Waste utilities are expected to provide high quality solid waste services at an affordable price. The efficient management of solid waste requires its assessment from an economic and environmental perspective, i.e., eco-efficiency assessment. Although the reduction of unsorted waste incurs an economic cost, its positive externalities are huge for the well-being of society, the environment, and people. Our study quantifies the marginal cost of reducing any unsorted waste using stochastic frontier analysis techniques which allow us to estimate the eco-efficiency of the waste sector. Our empirical approach focuses on the municipal solid waste collection and recycling services provided by several waste utilities in Chile. The results indicate that substantial eco-inefficiency in the sector exists, since the average eco-efficiency score is roughly 0.5 which means that the municipalities could approximately halve their operational costs and unsorted waste to produce the same level of output. The average marginal cost of reducing unsorted waste is 32.28 Chilean pesos per ton, although notable differences are revealed among the waste utilities evaluated. The results provided by this study are of great interest to stakeholders to promote sustainable management solutions and resource efficient solid waste services.
... Although a large body of literature exists regarding the conventional productivity assessment in the drinking water and sanitation sector (Lannier and Porcher 2014;Molinos-Senante et al. 2018a;Molinos-Senante et al. 2017;Ananda 2013;Cunningham 2013;Sala-Garrido et al. 2019), studies that integrate environmentally undesirable outputs into productivity assessments are relatively scarce (Ananda and Hampf 2015;Molinos-Senante et al. 2014). It is noteworthy that efforts have been made in this regard in developing countries as well. ...
Chapter
Full-text available
The challenge of enforcing the right to water in Zambia against a mining conglomerate.
... Although a large body of literature exists regarding the conventional productivity assessment in the drinking water and sanitation sector (Lannier and Porcher 2014;Molinos-Senante et al. 2018a;Molinos-Senante et al. 2017;Ananda 2013;Cunningham 2013;Sala-Garrido et al. 2019), studies that integrate environmentally undesirable outputs into productivity assessments are relatively scarce (Ananda and Hampf 2015;Molinos-Senante et al. 2014). It is noteworthy that efforts have been made in this regard in developing countries as well. ...
Chapter
Full-text available
Drinking water and sanitation services are vulnerable to adverse climate impacts such as persistent low rainfall, extreme droughts and floods. The sector also contributes to climate change by its considerable emissions footprint. Efforts to reduce greenhouse gas emissions (GHGs) in order to tackle climate change have put a spotlight on the environmental efficiency of water utility and sanitation operations. Substantial energy input is used in providing drinking water and sanitation services, particularly, water supply augmentation, water and sewage treatment and pumping. In many countries, the traditional water supplies have been under pressure due to increased drought conditions and climate variability raising water security concerns. Climate-independent water supply options such as desalinisation have exacerbated energy use in recent times. This chapter presents an approach to internalise undesirable outputs, namely GHGs and real water losses in the assessment of productivity performance of water utilities. The approach extends the conventional productivity assessment to derive an environmentally sustainable measure of utility performance. Using time-series data for the Australian drinking water and sanitation sector, the chapter analyses environmentally-sensitive productivity, which accounts for undesirable outputs. Findings indicate that environmentally adjusted productivity growth of the sector has improved in cumulative terms. However, the environmentally adjusted productivity growth trend has shown a declining trajectory. The conventional productivity assessment overstated the productivity growth compared to environmentally adjusted productivity growth. Incorporating undesirable outputs into performance evaluation frameworks enables environmentally sustainable management of drinking water and sanitation systems and advancing sustainable development goals.
... Economies of scale have also been found in India (Gupta et al., 2012;Kumar and Managi, 2010;Singh et al., 2010), Mexico (Anwandter and Ozuna, 2002), Malaysia (Munisamy, 2009), Vietnam (Nauges and Van den , Tunisia (Mellah and Amor, 2016), Iran (Nourali et al., 2014), Sri Lanka (Dharmaratna and Parasnis, 2012), and six Central American countries (Corton and Berg, 2009). In Chile, the results were not significant although positive and negative economies of scale were found for full private and concessionary water utilities, respectively (Molinos-Senante et al., 2018). Although in the water supply and wastewater sectors, economies of density can be measured in terms of customers, networks and production (Walter et al., 2009), in developing countries, they were analyzed only with regard to network concentration. ...
Article
Due to the importance of analyzing the efficiency of water utilities and the large number of publications in this area, at least five reviews have already been carried out to identify patterns and trends. These reviews aimed to cover worldwide studies, and the results may not correspond to the reality in developing countries. Therefore, this review provides a literature update on the quantitative studies of water and sanitation services, focusing on studies carried out in developing countries. This overview mainly examines the economies of scale and scope, public versus private ownership, and the impact of regulation. As expected, our results show patterns that differ from those found in worldwide reviews (e.g., the influence of regulatory incentives on operator efficiency and economies of scope). In addition, this paper presents patterns regarding the quantitative methods adopted, as well as some trends and areas for possible future research.
... High-level lenses centered on macro institutional arrangements or on capitalist development do not really help us to understand how private capital is variously organized-and, ultimately, how this heterogeneity matters for service provision on the ground. They cannot fully explain, for example, why Molinos-Senante et al. (2018) have found that the quality and efficiency of services varied across private providers in Chile, despite the fact that they operate within the same institutional environment, or why found that water concession contracts owned by domestic business groups were more likely to persist over time in Argentina than contracts held by foreign multinationals. Both examples suggest we stand to gain a better understanding of private participation by "disordering" monolithic treatments of the private sector and, in particular, by paying greater heed to business organization and politics. ...
Thesis
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This dissertation consists of three articles that together seek to deconstruct, or disorder, monolithic treatments of “private sector” participation in the delivery of urban water and sanitation services. The studies interrogate how variation in forms of business ownership and politics not only shape public-private collaboration for service delivery over time but also contribute to re-configuring the institutions that govern service provision markets in global South contexts. Drawing on historical and ethnographic research on the development of private participation in water and sanitation provision in Brazil, my work yields three central insights. First, it illuminates how shifts in business ownership away from family-owned construction business groups towards ownership by financial investors produced a “centralizing” organizational and institutional pull in the governance of private urban water and sanitation services. Once heavily embedded in local politics, private holdings reduced subsidiary autonomy, eschewed close relations with local politicians, and mobilized for regulatory centralization. This finding problematizes the tendency within scholarship on the financialization of urban development to position financial investors as capitalizing on local forms of entrepreneurial politics, suggesting the need to consider how different investors fluidly engage with shifting market contexts. I argue that financial investors perceived centralization as an effective strategy for ensuring stable returns across consolidated operations within otherwise unstable and fragmented local political environments. Second, my work challenges the tendency to portray infrastructure investors as passive onlookers searching for institutionally-stable investment geographies. I show that private investors in Brazil’s water and sanitation sector were able to counter strong opposition and successfully lobby for a centralizing regulatory reform by constructing business power over time. This entailed learning from mistakes and adjusting mobilization strategies, revealing that infrastructure investors do not have fixed preferences, may learn and adapt, and can be key agents of institutional change. Finally, my research unsettles the assumption that profit maximization will override other service objectives. My comparative analysis of the long-term outcomes of different models of public-private collaboration shows that states can still shape service delivery priorities through the work of politically-appointed managers and state allies, what I call “political modulation.” This finding not only problematizes policy advice that prescribes political insulation as a strategy for improving service delivery, it also suggests politics can play a positive role in promoting more equitable service outcomes.
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Given a changing and uncertain future climate with increasedwater scarcity, one of the main challenges of water companies is to reduce leakage in the water distribution system. To deal withthis challenge, water regulators should introduce efficient economic incentives. In this study, shadow prices of water leakage for 23 Chilean water companies over the period 2007–2015 were computed by estimating a translog input distance function using stochastic frontier techniques. The results indicate that the average shadow price of water leakage is 0.441€/m3, which means that on average the cost of losing one cubic metre from the water distribution system is 0.441€. Moreover, a comparison of the volumetric water tariffs and the shadow prices of water leakage evidenced that most water companies have economic incentives to reduce water losses, but they do not. Hence, the water regulator should introduce direct penalties to achieve water leakage targets. The findings of our study are of great importance for policy makers to define incentives to water companies to achieve environmental targets and more efficiently manage water resources.
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The assessment of profit, productivity, and price change over time is valuable for regulators and companies when setting tariffs. This paper innovates by comparing profit, price, and productivity changes for English and Welsh water services between water and sewerage companies (WaSCs) and water-only companies (WoCs) over the period of 2001–2009. The Bennet-Bowley indicator (BBI) was used to estimate productivity change over time at industry and company levels. The findings of this study show that the imposition of price cap regulation increased companies’ profits, primarily due to a positive price effect. Moreover, the tightened price review in 1999 had a small, positive impact on the productivity of companies. In contrast, the introduction of new price limits in 2004 did not have a positive impact on companies’ productivity: WaSC and WoC performance improved only in 2004 and 2005. Finally, WaSCs showed higher levels of performance than WoCs. This study provides essential information to policy makers and water company managers so that they can improve decision making aimed at enhancing water industry performance.
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In this article we investigate the relationship between productivity and profitability, and their drivers: changes in outputs, output and input prices, technical change, technical efficiency change, and scale and mark-up effects. We apply profit decomposition to the water and sewerage companies in England and Wales in 1991–2016. We find that over this period their profit and productivity increased by 4% and 2.5% per year, respectively. Technical change, scale and mark-up effects, and output and input prices contributed positively to profit growth, while the impact of technical efficiency change, although positive, was small.
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Several benchmarking techniques have been developed to assess and decompose the productivity growth of the industries. This paper reports the estimation of productivity change and its drivers for 23 water and sewerage companies in Chile during the period between 2007 and 2015, by applying the stochastic frontier approach (SFA) and data envelopment analysis (DEA) techniques. The study found that on average the productivity growth values estimated using the SFA approach were higher than those computed using DEA. Both methodological approaches evidenced that the main drivers contributing positively to productivity growth were the scale effect and technical change. However, under SFA, efficiency change contributed slightly positively to productivity change whereas under DEA, this driver contributed negatively. The differences in the productivity growth results between these benchmarking techniques suggest that policy-makers should not be indifferent to the selection of the most appropriate method for evaluating the productivity growth of water companies.
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Most previous studies evaluating the effect of ownership on the performance of water companies have ignored the fact that there are several types of private water companies. In this study, we instead recognize that private water companies can differ considerably in how they are managed, based on whether their infrastructure is privately or publicly owned. We estimated change in productivity of fully-privatized companies and concessionary companies by employing the metafrontier Malmquist Luenberger productivity (MMLP) index, which allowed us to integrate quality-of-service variables as undesirable outputs. We segregated the MMLP index to assess changes over time in relative efficiency, the use of best practice technology and the magnitude of the technological gap between technology in use and technology represented by the metafrontier. For a sample of Chilean water companies, the results indicate that during the years 2010–2016, productivity of fully-privatized water companies decreased by 7.5% which was mainly attributed to technical gap regression. By contrast, the productivity of concessionary water companies improved by 0.51% being the best-practice change the main driver of productivity. The methods we used and the conclusions of this study should be useful to water regulators because we show the relevance of both integrating quality-of-service attributes and classifying types of water companies before assessing changes in productivity over time.
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Various approaches are used to measure the firms' performance. Grey relational analysis is one of the multiple attribute decision-making methods and data envelopment analysis is used to calculate the efficiency. Regarding the importance of water and wastewater companies' services, the present study, evaluates the performance and rank these companies by using grey relational analysis and data envelopment analysis approaches based on balanced scorecard criteria. Besides, balanced scorecard considers all levels of organization. In this research, statistical population includes thirty-five municipal water and wastewater companies in Iran for the year 2017. In order to ascertain grey relational grade, fuzzy normalization method was used then by subtracting normalized numbers from one, reference sequences obtained and in the next step, grey relational coefficient was calculated and finally, grey relational grade was determined by multiplying relative weight from Shannon entropy to relational coefficients. In order to assess companies' efficiency in data envelopment analysis, after ascertaining input and output indices, with the assumption of constant returns to scale and output-oriented viewpoint, the efficiency scores were calculated. Also, to rank efficient units Anderson-Petersen model implemented. Results demonstrated that, grey relational analysis is a more accurate method to measure the performance of water and wastewater companies.
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Understanding water-energy nexus in the provision of drinking water services is a challenge which has outstanding relevance in the current climatic emergency. Environmental efficiency and eco-efficiency assessment of water companies are two useful tools to address this challenge. In this study, we estimated hyperbolic and enhanced hyperbolic distance functions to compute the potential reduction in greenhouse gas (GHG) emissions and energy costs in the provision of drinking water. The empirical application focused on the English and Welsh water companies over 2011-2019. Average environmental efficiency and eco-efficiency scores were 0.920 and 0.962, respectively which indicates that water companies performed well but there is room for improvement. Moreover, due to the economies of scale, the cost of reducing GHG emissions was higher for water and sewerage companies than for water only companies. The results and conclusions of this study allow better understanding of the relationship between the provision of drinking water, energy costs and GHG emissions.
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Conventional performance assessments of water companies ignore the external costs due to water supply outages. To overcome this gap, we evaluate the impact of external costs of unplanned supply interruptions on the efficiency of water companies. Two efficiency metrics, internal technical efficiency (ITE), and total technical efficiency (TTE), were estimated based on data envelopment analysis (DEA). The results evidence that the external costs of unplanned water supply interruptions impact, on average, 7.9% of the efficiency of water companies. We also explored the impact of a set of environmental variables on water company efficiency.
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Water companies are expected to deliver high-quality water services to their customers that include, among others, continuity of water supply. Unplanned water supply interruptions (UWSI) indicate a cost for the water companies and a deterioration in the quality of service for the customers. Thus, it is essential to quantify the cost of reducing UWSI, i.e., the cost of improving the quality of service to customers. This study aims to estimate the marginal cost of reducing UWSI using a stochastic frontier model, which also enabled us to estimate cost efficiency, economies of scale, and economies of density. The empirical approach focused on a sample of 21 Chilean water companies over the period 2007-2017, embracing full private, concessionary, and public water companies. The results indicate that the average marginal cost for reducing UWSI is €2.703=h. This cost is lower for concessionary water companies compared to full private and public water companies. The study's findings can aid regulators in designing effective policies to ensure that companies are rewarded (or penalized) for better (or worse) performance and to eliminate any welfare losses due to lower levels of service quality.
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Assessing the productivity change of water companies provides relevant information for both water regulators and companies’ managers. Past research has illustrated that different indicators and indexes have been applied although not all of them are equally reliable. Thus, this study evaluates the total factor productivity (TFP) change and its drivers employing the Luenberger-Hicks-Moorsteen productivity indicator (LHMPI) including, for the first time, quality of service variables as undesirable outputs. Moreover, unlike the previous studies, LHMPI was decomposed into three drivers; namely technical change, technical efficiency change and scale efficiency change. Our empirical application conducted on a sample of Chilean water companies over 2007–2018 embracing full private water companies (FPWCs) and concessionary water companies (CWCs). Results evidenced that, on average, TFP increased at an annual rate of 2.2%, mainly due to outputs rise. The main driver of productivity growth was scale efficiency change suggesting that adjustments in the water companies’ scale of operations could lead to lower operational costs. It was also evidenced that FPWCs performed better than CWCs over the period analyzed.
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The firms’ performance assessment for regulation requires estimating profit change and its drivers. This study estimates and decomposes profit changes into components such as output and input price changes, output growth, and markups. Using the stochastic frontier analysis, we compute the drivers of productivity change, such as technical change, returns to scale, and efficiency change. We apply the profit decomposition to several full private water companies (FPWCs), concessionary water companies (CWCs), and a public water company (PWC) in Chile over two years. Results showed that profit and total factor productivity levels increased over time at 1.967% and 1.062% per annum, respectively. Technical change, gains in efficiency, and a reduction in input prices were the main drivers contributing to positive profit growth. We also found that the PWC was more productive and profitable than private companies, with FPWCs outperforming CWCs. The results of our study can aid policymakers in understanding how resources are used, why some companies in the water industry perform better than others, and how these changes impact productivity over time.
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Many regulators employ frontier techniques to measure the performance of regulated monopolistic companies. This study estimates the cost efficiency of the water sector using the stochastic non-parametric envelopment of data (StoNED) method which brings together the qualities of both data envelopment analysis (DEA) and stochastic frontier analysis (SFA). This technique is applied to several Chilean private and public water companies without and with the inclusion of several environmental variables. The results indicated that the water industry demonstrated high levels of cost efficiency. Based on average results, it appeared that the public water company performed slightly better than private ones, with full private water companies being more efficient than concessionary. However, the analysis of the trend in companies’ efficiency revealed that full private water companies’ efficiency increased over the years 2010-2018, whereas the opposite was true for the public water company. It is also found that environmental variables might have a higher impact on public water company costs and inefficiency than private ones.
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Facing with global sanitation and resources crisis, developing and identifying optimal sustainable sanitation system (SSS) is particularly challenging in most of global areas through conventional solution. A novel method by coupling macro-environmental content analysis, compatibility assessment, and multi-criteria decision analysis into structured decision-making is developed and applied to select the optimal SSS to improve the rural human settlements environment of Beijing, China. A predictive model of weighting coefficient has been proposed to deal with the interactions based on the data-driven method considering temporal (56-y time frame) and geographic (87 countries) factors. The technologies space with mature technologies of SSS came from 402 demonstration projects of the world. The results show that vacuum toilet + vacuum sewer + anaerobic digestion/composting (for blackwater) + struvite crystallization (for yellowwater), and biogas/composting toilet + gravity sewer + anaerobic digestion/composting is suitable for high and middle income Districts of Beijing, respectively, in the coming 5–10 years. Although the novel method is the first application in SSS planning, the proposed method can also be extended to apply to other complex infrastructure decision-making.
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This paper researches the existence of economies of scale and scope in the Chilean water and sewerage industry using a translog cost function approach over the period 2010–2017. It also provides estimates of productivity growth and its determinants, technical change and scale effect. The results suggest that on average, the water industry operates under increasing economies of scale, which implies that further increases in water companies’ scale of operations may be cost beneficial. Economies of scope between water and sewerage services were found for the average company, which suggests that the joint provision of these services may lead to cost savings. An average annual productivity increase of 2.5% was reported with scale effect being the major driver. Full private companies performed better than concessionary and public water companies. The results of our study can be of greater interest to the policy-makers who want to make decisions on introducing policy reforms such as mergers, unbundling of the water and sewerage supply chain, or developing incentives to improve companies’ productivity.
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This study examines the efficiency and productivity of the Chilean water and sewerage industry over the period 2010–2017 using a stochastic cost frontier model. This methodological approach allowed us to evaluate the impact of water companies´ ownership on their productivity. This is very relevant for the Chilean water and sewerage industry which involves a public, full private and concessionary water companies. The results evidenced that the Chilean water and sewerage industry improved its productivity across years. However, the increase in the productivity of full private and concessionary water companies was larger than the one experienced by the public water company.
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Purpose The purpose of this paper is to estimate and compare the efficiency of several water utilities using three frontier techniques. Moreover, this study estimates the impact of several qualities of service variables on water utilities’ performance. Design/methodology/approach The paper utilizes three frontier techniques such as data envelopment analysis (DEA), stochastic frontier analysis (SFA) and stochastic non-parametric envelopment of data (StoNED) to estimate efficiency scores. Findings Efficiency scores for each methodological approach were different being on average, 0.745, 0.857 and 0.933 for SFA, DEA and StoNED methods, respectively. Moreover, it was evidenced that water leakage had a statistically significant impact on water utilities’ costs. Research limitations/implications The choice of an adequate and robust method for benchmarking the efficiency of water utilities is very relevant for water regulators because it affects decision making process such as water tariffs and design incentives to improve the performance and quality of service of water utilities. Originality/value This paper evaluates and compares the performance of a sample of water utilities using three different frontier methods. It has been revealed that the choice of the efficiency assessment method matters. Unlike SFA and DEA, a lower variability was shown in the efficiency scores obtained from the StoNED method.
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The measurement of efficiency of water utilities has been traditionally carried out using econometric methods or linear programming techniques. Alternatively, in this study a data mining non-parametric method is used, such as an artificial neural network (ANN) approach, to predict the efficiency of several water companies in England and Wales. The further use of a regression tree model allowed us to visualize and quantify the impact of operating characteristics on efficiency. The average efficiency score for the water industry was 0.411. Average scores for water only companies and water and sewerage companies were 0.210 and 0.626, respectively. Only one water company was identified as being fully efficient. This indicates that most of the English and Welsh water companies need to make substantial improvements in their managerial practices to catch-up with the most efficient ones in the industry. Several operating characteristics such as water leakage, water taken from different sources and population density were found to influence efficiency. The percentage of water leakage was identified as the most relevant operational variable influencing the efficiency of water companies. The findings of our study aim to support benchmarking analysis in regulated industries and to get a better insight on what drives efficiency.
The measurement of efficiency of water utilities is a valuable tool for water regulators and managers to provide services in a sustainable way. Understanding the sources of inefficiency could support business decision making process. In this study we employ the most recent advanced panel data stochastic frontier models to estimate the level of overall technical efficiency of water services in Chile. These econometric models allow incorporating heterogeneity across water utilities and different sources of inefficiency, persistent and transient. The results showed that technical efficiency scores were sensitive to model specification. When efficiency is distinguished between persistent and transient efficiency, it is found that industry performed well in its daily operations, i.e., high transient efficiency. However, mean persistent efficiency was low indicating that industry needed structural transformations to improve performance. Thus, inefficiency in the Chilean water industry is a long run issue. Private water utilities appeared to be more efficient than public water utilities.
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Evaluating and benchmarking the energy efficiency of drinking water treatment plants (DWTPs) is essential to improve the environmental and economic performance of these facilities. However, robust and reliable methods should be used to compute energy efficiency scores to avoid biased conclusions. In this study, the stochastic non-parametric envelopment of data (StoNED) method was employed to assess the energy efficiency of a sample of 146 DWTPs. This methodological approach also allowed us to explore the influence of several environmental variables on the energy performance of DWTPs. The average energy efficiency score of the facilities evaluated was 0.461. It means that they could save 54% of the current energy consumption. 42% of the DWTPs evaluated presented an average energy efficiency score varied between 0.41 and 0.61. None of the 146 water treatment facilities was identified as fully energy efficient which evidences that all DWTPs could save energy. The source of raw water, the age of the DWTP and the main technology used to treat raw water were factors that statistically affected the energy efficiency of DWTPs. It was also estimated that a 1% increase in the removal of total dissolved solids and sulfates result in an increase in energy consumption by 0.340 and 0.409%, respectively, ceteris paribus. The information and conclusions of this study are of great interest for water managers and regulators to improve the operation of DWTPs and plan the design of new facilities.
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Interest in evaluating productivity changes in water companies has increased in recent years. In this paper, for the first time, we employ the Luenberger-Hicks-Moorsteen Productivity Indicator (LHMPI) to evaluate productivity changes in a sample of Chilean water companies from 2010 to 2016. Productivity change estimations obtained by both the Luenberger Productivity Indicator (LPI) and the LHMPI are compared. Moreover, both indicators were computed assuming constant and variable returns to scale technologies. The LHMPI estimates illustrate that productivity in Chilean water companies has slightly improved over the period studied due to the positive trend of outputs, whereas the inputs negatively contributed to productivity changes. Results from the empirical analysis enabled us to verify that the LHMPI and LPI (and their drivers) are statistically different. This conclusion illustrates that water regulators need to pay attention to the indicators used when assessing productivity changes in water companies.
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We consider the problem of measuring and analysing productivity change when firms have access to multiple technologies (i.e., techniques for transforming inputs into outputs). We measure productivity change using an index that satisfies a set of basic axioms from index theory (e.g., identity, proportionality, transitivity). We show how indices of this type can be exhaustively decomposed into various measures of environmental change, technical change and efficiency change. We are particularly interested in the relationship between productivity and technical efficiency. In theory, if firms have access to multiple technologies, then measures of technical efficiency can be decomposed into metatechnology ratios (measures of how well firm managers choose technologies) and measures of residual technical efficiency (measures of how well chosen technologies are used). We explain how data envelopment analysis (DEA) can be used to estimate these components. To illustrate, we use DEA to estimate the productivity gains and losses associated with using different highway maintenance technologies in Virginia.
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China is currently facing water scarcity issues, which can partially be relieved with improvements in efficiency in its urban water supply sector. Using a manually collected utility-level dataset for 2009–13, we examine the performance of Chinese urban water utilities, taking into account their regulatory environment. Our main findings are that: (1) an increase in the number of non-technical staff does not increase output levels, while an increase in the number of technical staff, length of pipe or electricity usage can increase output; (2) customer density and non-household user rates are associated with lower levels of inefficiency (or higher levels of measured efficiency), while outsourcing staff rate, non-revenue water rate, and average piped water pressure do not significantly affect efficiency. These results suggest that Chinese urban water utilities can be improved through performance-based regulation and incentives that take into account environmental factors of utilities.
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Since the late 1970s, water services have been privatised in some developed countries in an attempt to improve performance. However, after three decades of privatisations the superiority of private management is being called into question and several cities are returning to public provision. In this paper we revisit the relationship between ownership and performance in urban water services management using directional distance functions, metafrontiers and Data Envelopment Analysis (DEA) techniques. The technical efficiency in the provision of water delivery services in a sample of Spanish municipalities is assessed at the level of the management of specific production factors; moreover, we discuss whether differences in efficiency between private and public decision units are due to either different capabilities of managers (managerial efficiency) or different technological restrictions (ownership efficiency). Our main finding is that private management is more efficient in the use of labour input, mainly because of the technological restrictions faced by public management units, such as legal and institutional restrictions. Conversely, private management appears to be less efficient at managing operational costs.
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The assessment of the profit change over time and its drivers is essential to analyse firms’ financial performance. This paper investigates profit change and its components for the 10 English and Welsh water and sewerage water companies over the period 1991–2008 and three regulatory sub-periods. Profit changes and their drivers are computed following two approaches, namely without controlling for water and sewerage quality issues and after decomposing the output effect into high quality and low quality output effect. In both cases, profit change is decomposed into various factors such as quantity and price effect, technical change, efficiency change, resource mix, product mix, and scale effect. Profit change over the whole period was negative; with the substantial negative price effect being the main driver, which outstripped the positive quantity effect. This negative profit change was significantly marked from 2000 to 2005 while in the sub-period 1994–2000, which covers the 1994 price review, the profit change was positive. A further decomposition illustrated the significant negative impact of the input price and scale effects on profit changes. The methodology and conclusions of this paper are of great interest for both regulators and water utilities managers to improve future performance.
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As first noticed by Coase (1946), a standard result in utility regulation is that efficiency requires two-part tariffs with marginal prices set to marginal costs and fixed fees equal to each customer’ s share of fixed costs. Residential water customers in France face marginal prices for water that average about 8% more than marginal costs. Under price elasticity estimates that are consistent with previous results in the literature, efficiency costs represent around 8 million euros of welfare losses for 2008. Even though the impact is fairly small, current price schedules are an important pre-existing distortion which should be considered when evaluating current taxes aimed at addressing external costs. Moreover, efficiency gains from reformed tariffs could be used to fund water assistance programs focused on financially stressed households.
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Despite the rapid global revitalisation of urban water policy, and the universal need to measure and improve organizational efficiency and productivity in all suppliers as a means of ensuring the sustainability of this key resource, only recently have the most advanced econometric and mathematical programming frontier techniques been applied to urban water utilities. This paper provides a synoptic survey of the comparatively few empirical analyses of frontier efficiency and productivity measurement in urban water utilities in Australia, the UK, Spain, the US, Mexico, Brazil, Canada, Germany, Italy, Malaysia and Slovenia, among others. The survey examines both estimation and measurement techniques and the non-discretionary structural and regulatory determinants of efficiency and productivity. There is particular focus on how the results of past studies inform regulatory policy and managerial behaviour and key directions for future research.
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This paper performs a literature update of quantitative studies of water and sanitation services (WSS). There are 190 studies which use cost or production functions to evaluate the performance of WSS utilities. The studies examine (1) the scale, scope or density economies of utilities in a particular country or region, (2) the influence of ownership on efficiency, (3) the existence and power of incentives associated with different governance systems (including external regulation), and (4) performance assessment (benchmarking). In addition, this paper presents some patterns regarding quantitative methods adopted over time and major trends in results.
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This paper uses a meta-Malmquist index for measuring productivity change of the water industry in England and Wales and compares this to the traditional Malmquist index. The meta-Malmquist index computes productivity change with reference to a meta-frontier, it is computationally simpler and it is circular. The analysis covers all 22 UK water companies in existence in 2007, using data over the period 1993–2007. We focus on operating expenditure in line with assessments in this field, which treat operating and capital expenditure as lacking substitutability. We find important improvements in productivity between 1993 and 2005, most of which were due to frontier shifts rather than catch up to the frontier by companies. After 2005, the productivity shows a declining trend. We further use the meta-Malmquist index to compare the productivities of companies at the same and at different points in time. This shows some interesting results relating to the productivity of each company relative to that of other companies over time, and also how the performance of each company relative to itself over 1993–2007 has evolved. The paper is grounded in the broad theory of methods for measuring productivity change, and more specifically on the use of circular Malmquist indices for that purpose. In this context, the contribution of the paper is methodological and applied. From the methodology perspective, the paper demonstrates the use of circular meta-Malmquist indices in a comparative context not only across companies but also within company across time. This type of within-company assessment using Malmquist indices has not been applied extensively and to the authors’ knowledge not to the UK water industry. From the application perspective, the paper throws light on the performance of UK water companies and assesses the potential impact of regulation on their performance. In this context, it updates the relevant literature using more recent data.
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This article computes input-specific scores of technical efficiency for a sample of water utilities located in the southern Spanish region of Andalusia. In addition, differences in efficiency between different operating environments are investigated. Concerning the debate about ownership and efficiency, we find that privately owned companies outperform public utilities in their management of labour. Furthermore, technical efficiency is found to be greater among firms located in highly populated areas and for utilities providing water services to tourist municipalities. Finally, no empirical evidence supporting the greater technical efficiency of consortia of water utilities, a managerial strategy strongly encouraged by regional politicians, is found.
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Under pressure from donor agencies and international financial institutions such as the World Bank, some developing countries have experimented with the privatization of water services. This article reviews the econometric evidence on the effects of water privatization in developing economies and presents new results using statistical data envelopment analysis and stochastic cost frontier techniques and data from Africa. The analysis fails to show evidence of better performance by private utilities than by state-owned utilities. Among the reasons why water privatization could prove problematic in lower-income economies are the technology of water provision and the nature of the product, transaction costs, and regulatory weaknesses. Copyright 2006, Oxford University Press.
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Abstract In many areas of economic analysis, economic theory restricts the shape as well as other characteristics of functions used to represent economic constructs. Obvious examples are the monotonicity and curvature conditions that apply to utility, profit, and cost functions. Commonly, these regularity conditions are imposed either locally or globally. Here we extend and improve upon currently available estimation methods for imposing regularity conditions by imposing regularity on a connected subset of the regressor space. This method offers important advantages over the local approach by imposing theoretical consistency not only locally, at a given evaluation point but also within the whole empirically relevant region of the domain associated with the function being estimated. The method also provides benefits relative to the global approach, through higher flexibility, which generally leads to a better model fit to the sample data compared to the global imposition of regularity. Specific contributions of this paper are (a) to increase the computational speed and tractability of imposing regularity conditions in estimation, (b) to provide regularity preserving point estimates, (c) to avoid biases existent in previous applications, and (d) to illustrate the benefits of the regional approach via numerical simulation results
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This paper develops index number procedures for making comparisons under very general circumstances. Malmquist input, output, and productivity comparisons are defined for structures of production with arbitrary returns to scale, substitution possibilities and biases in productivity change. For translog production structures, Törnqvist output and input indexes are shown to equal the mean of two Malmquist indexes. The Törnqvist productivity index, corrected by a scale factor, is shown to equal the mean of two Malmquist productivity indexes. Similar results are given for making cost of living comparisons under general structures of consumer preferences.
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The broad scope and definition of sustainability has perplexed assessment of water infrastructure systems, especially for the purpose of directing engineering practices when quantified criteria are desired. An input-oriented data envelopment analysis (DEA) was improved to benchmark the relative sustainability of the water infrastructure of 157 cities in China. The DEA calculates a single sustainability score using seven inputs and five outputs that represent the economic, resource and environmental dimensions of sustainability. Overall, 69 out of the 157 sampled systems obtained high sustainability scores. Eight specific efficiency indicators based on individual DEA input to output ratio were evaluated to identify the causes of performance differences. Compared to water supply systems, the performance of wastewater treatment plants has greater influence on the sustainability score of the overall system. For all systems, the sustainability scores are more sensitive to sludge production and electricity consumption than capital investment and removal efficiency of treatment processes. The DEA provides guidelines to cities for setting priorities in order to meet specific sustainability criteria. Statistical analysis indicates that the overall sustainability score primarily depends on the system scale, meteorological conditions such as air temperature and rainfall, and source water quality.
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Decision makers must keep in mind that water services have an invaluable ‘price’ for the public budget and society’s welfare. However, due to the specific features of the service, water utilities are prone to inefficiency. Thus, performance evaluation becomes indispensable to face this constraint. Besides the application of the traditional technique of Data Envelopment Analysis to evaluate the performance of Portuguese water utilities, this study also implements the robust technique of order-m to assess the influence of operational environment on water utilities’ performance. In spite of several reforms, the Portuguese water sector still reveals significant levels of inefficiency, partially caused by an inappropriate operating scale. Concerning the operational environment, it was possible to observe a positive influence of private sector participation, economies of scope, and groundwater sources on efficiency. The influence of the ‘quality of service provided’ was also studied in this performance analysis.
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The current state of the water and sanitation sector has put water-related innovations high on the global policy agenda. However, the systemic complexity that typically surrounds such contexts call for actionable knowledge of how to enable and orchestrate innovative solutions by connecting different players via organized networks. In this study we explore and analyse the Water Innovation Accelerator, which is a virtual network-centred incubator model designed and implemented in Sweden. Framed by theory and research on open innovation, incubation models, and entrepreneurial networks we provide an analysis of the design, working and performance of the Water Innovation Accelerator. In sum, our findings provide empirical support for virtual accelerators as an effective means to aid the development and market uptake of water related innovative solutions. Its overall effectiveness builds on its ability to bring private and public actors with different assets and competencies together via its entrepreneurial network, where the incubator team play a critical role for identifying and encouraging network-embedded innovation opportunities. However, the perceived effectiveness of the acceleration process for SMEs seems to be contingent on whether they are positioned in later stages of the innovation process, as well as their proximity to the incubator network. In these respects, the study provides valuable insights that may aid researchers, incubation managers and policy makers in current and future efforts to accelerate water innovation.
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Information and communication technologies have the potential to increase productivity, improving efficiency and eventually raising the quality of water services. Although this potential is recognized, great variation exists in the way water utilities adopt information and communication technologies. Based on literature review and empirical data drawn from the three case studies (a municipality in Greece, an airport in Italy and a water utility in the Netherlands) developed under the EU-funded Waternomics project the paper highlights how environmental, organizational and individual factors explain technology adoption. The paper pays particular attention to the idiosyncrasies of the water services sector, which influence this process. These include include the social and conomic importance of water supply, the monopolistic nature of the sector and increased commercialization of public water utilities. Our cases suggest that drivers of technology adoption appear to be somewhat ambiguous in the water services sector, in that they impact adoption in diverse locations differently. Our cases also suggest is that the prioritization of the factors that determine adoption are dynamic and change over time.
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For UK Water and Sewerage Companies (WaSCs), the capacity to innovate capital investment processes, and consequently performance outcomes is fundamental as they seek to deliberately change infrastructure to improve the sustainability of service delivery within a comparatively regulated framework. Innovation is viewed here as being either incremental or radical changes to the products (services) and processes (ways of delivering services) which are typical to the organisation (WaSCs). Product and process innovations may involve changes to some or all of technologies, organisational structure and processes, behaviour and culture, and knowledge and skills within the organisation and its supply chain. This paper sets out to provide an understanding of the factors which both enable and constrain the development and adoption of infrastructure investment process innovations in the context of water utilities concerned with water and sewerage service delivery. The paper documents the process and results from an inductive research programme of participatory action research undertaken within a large, privately owned UK WaSC to facilitate infrastructure investment process innovation. Employee narratives during the innovation process from initiation to adoption decision-making were characterised and analysed. The findings suggest that the development and adoption of asset investment process innovations tends to be skewed in favour of opportunities which align with (i) UK and European Union legislative and regulatory drivers; (ii) WaSC mission policy and goals; (iii) innovation cost advantages over a prescribed period of time; (iv) perceived risks to service provision associated with the introduction of the innovation, and; (v) the extent to which the organisational processes and cultures which act to increase the absorptive capacity of the WaSC to the proposed innovation are already functioning.
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A number of studies have emphasized that governance has many components, including accountability, autonomy, role clarity, policy coherence (especially as related to objectives), stakeholder participation/engagement, professionalism (capacity), and transparency. This study identifies seven elements affecting infrastructure performance: institutions, interests (stakeholders), information, incentives, ideas, ideals (priorities placed on objectives), and individuals (leadership). It describes how these seven interrelated elements determine how effectively a regulatory system responds to challenges.
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Water scarcity is one of the main problems faced by many regions in the XXIst century. In this context, the need to reduce leakages from water distribution systems has gained almost universal acceptance. The concept of sustainable economic level of leakage (SELL) has been proposed to internalize the environmental and resource costs within economic level of leakage calculations. However, because these costs are not set by the market, they have not often been calculated. In this paper, the directional-distance function was used to estimate the shadow price of leakages as a proxy of their environmental and resource costs. This is a pioneering approach to the economic valuation of leakage externalities. An empirical application was carried out for the main Chilean water companies. The estimated results indicated that for 2014, the average shadow price of leakages was approximately 32% of the price of the water delivered. Moreover, as a sensitivity analysis, the shadow prices of the leakages were calculated from the perspective of the water companies' managers and the regulator. The methodology and findings of this study are essential for supporting the decision process of reducing leakage, contributing to the improvement of economic, social and environmental efficiency and sustainability of urban water supplies.
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Small to medium sized water utilities face serious challenges to meet broad sustainability objectives, because of technical, human and financial constraints and limited involvement in the inter-utility benchmarking. Most of these utilities are unable to address the performance gaps for various functional components, such as personnel, operational, financial, etc., of their water supply systems and rely on emergency response. Even if the information obtained from such benchmarking process is available, the outcome (indices) showing performance of these components, at the utility level, is useful for top level management. The operations management is more interested in the performance of sub-components (under each functional component) of the water supply systems within the utility. An intra-utility performance management model is conceptualized and developed for effective decision making at both the levels. A hierarchical based top-down approach initiates from overall sustainability objectives at the top, followed by primary and secondary performance measures of the sub-components, and indicators (basic building blocks) receive inputs from data/decision variables at the bottom. The model assesses the performance of each component and sub-component as ‘high’, ‘medium’, or ‘low’. Fuzzy based technique has been employed to deal with uncertainty issues due to data limitations and vagueness in expert knowledge. Sensitivity analysis helped to rank the indicators for their contribution in decision making. The model is implemented for a medium sized utility containing three sub-systems in the Okanagan Basin (BC, Canada). The results demonstrate the model's practicality to efficiently achieve sustainable performance in small to medium sized water utilities.
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Chile achieved universal levels of coverage in water, sewerage and wastewater treatment in urban areas. The providers show complete cost recovery, universal metering and diminishing consumption. But investments in Non-Revenue Water control have been deemed insufficient. We explore the sector's comparative technical efficiency, in recent years, and address new challenges related to Non-Revenue Water reduction. We find that a 10 percent reduction in Non-Revenue Water implies a 2.6 percent increase in the input vector. Regulators can induce providers to invest more by recognizing the increased costs, and influence efficiency gains sharing with clients, including automatic coefficients in the rate formula.
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Efficiency assessment of water and sewerage companies (WaSCs) has attracted considerable attention both for water company managers and water regulators. Within the methodological approaches that can be applied to estimate efficiency scores, data envelopment analysis (DEA) is the most widely applied technique. In spite of the positive features of DEA, it presents a major drawback which is its deterministic nature. In other words, conventional DEA models do not account for uncertainty in the data. To overcome this limitation, we assess, for the first time, the efficiency of a sample of Chilean WaSCs by using a DEA model with statistical tolerance in the data. Hence, 81 efficiency scores are estimated for each WaSC rather than a single score as with conventional DEA models. The results illustrate that outputs exhibit larger uncertainty than inputs. Moreover, WaSCs efficiency scores change significantly under the best-case and worst-case scenarios. The ranking of the WaSCs allows for the identification of which of them has the highest performance based on their efficiency scores. This information is essential to enhance efficiency and innovation in the water industry. Moreover, the introduction of uncertainty in the efficiency assessment allows for the prediction and ranking of future performance of WaSCs.
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This paper investigated factors affecting household water consumption in major Italian towns. Specifically, water demand in 103 Italian towns was analyzed over a five-year period (i.e., 2007 to 2011). Data was collected from each towns on the potential determinants of water consumption, including tariffs, income per capita, weather conditions and geographical and population characteristics. Previously, it was unclear whether a larger presence of public ownership would lead to improved water conservation practices and reductions in water consumption. Consequently, in addition to more commonly studied variables, water utilities ownership was included as a factor that could affect household water consumption. A mixed-effects model was used that contained both fixed effects and random effects. The results of this study provided interesting insights into the factors driving residential water consumption. The results confirmed that an applied tariff had a negative effect on residential water consumption. Further, the data showed that towns with larger populations served had higher levels of consumption. In relation to climatic and geographical features, only altitude exerted a significant negative effect on water consumption and temperature and precipitation had no effect on demand. Income per capita was also found not to have a significant effect on water consumption. The results of the study confirmed that water utilities ownership did not have a significant effect on water consumption. Tariffs were found to be significantly lower in towns where the water service was managed by publicly owned water utilities and, thus, water consumption in these towns was higher.
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This paper proposes a method for the evaluation of total factor productivity (TFP) based on the super-efficiency Data Envelopment Analysis (DEA) model and the Malmquist–Luenberger index. Under China's constraints for carbon emissions, data sampled from eight cities in two large areas in Anhui Province in central China, namely the Wan Jiang region and the northern Anhui region, from 2001 to 2009 were cited as the sample for the analysis of the low-carbon TFP index. An analysis of the low carbon index changes and composition during the period of economic transformation was also conducted. The empirical analysis results indicate that the technical efficiency change has a lower effect on the progress of total factor productivity and that technological progress exerts the dominant force in total factor productivity growth. This study also performed Hausman tests of the factors influencing the total factor productivity and suggested advances in certain policies accordingly.
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Under pressure from donor agencies and international financial institutions such as the World Bank, some developing countries have experimented with the privatization of water services. This article reviews the econometric evidence on the effects of water privatization in developing economies and presents new results using statistical data envelopment analysis and stochastic cost frontier techniques and data from Africa. The analysis fails to show evidence of better performance by private utilities than by state-owned utilities. Among the reasons why water privatization could prove problematic in lower-income economies are the technology of water provision and the nature of the product, transaction costs, and regulatory weaknesses.
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With the growing economic development experienced in China, there is an urge for more and better public infrastructure. Public-private partnership (PPP) is an innovative method for delivering these facilities and services. However, along with this method there are certain risk factors that exist or are more severe when compared to the traditional delivery method. This paper considers three types of common public projects in China that are often delivered by the PPP method, including water and wastewater, power and energy, and transportation. For each type of project, experienced practitioners in China were asked to rank the severity of 20 risk factors sought from a comprehensive literature review. The top five most severe risk factors for each type of project were considered. Government intervention and public credit were ranked severe for all three types of projects. The findings indicate that the most severe risks are government-related. It appears that the stakeholders have low confidence in the government. These findings have highlighted the severity of risk factors for common types of PPP projects in China. With this information, both public and private parties can be more aware of which risk factors would be the most severe for certain projects. As a result, appropriate precautions can be made to avoid or minimize the likelihood and consequences of these risks. By doing so, PPP projects can be carried out more successfully, and their further use can be encouraged in China. PPP stakeholders from other countries can also use the findings presented in this paper to prevent the occurrence of potential risks. Furthermore, the methodology adopted in this paper can easily be adopted for other countries. DOI: 10.1061/(ASCE)UP.1943-5444.0000086. (C) 2011 American Society of Civil Engineers.
Article
The water industry faces the challenge of implementing privatization reforms. This process mainly adopts the following two approaches: the privatization of public water and sewerage services (WSS) and the privatization of water companies’ ownership. This paper investigates the impact of both privatization approaches on changes in productivity in the water industry. In doing so, the Luenberger productivity indicator (LPI) was computed for a sample of Chilean water and sewerage companies (WaSCs) for the period 1997–2013. Unlike the most commonly applied index (Malmquist productivity index), the LPI simultaneously takes into account output expansion and input contraction. The results evidenced that productivity in the Chilean water industry decreased after its privatization. However, in the sub-periods in which the ownership of WaSCs was privatized, the productivity of the water industry increased due to technical improvements. On the other hand, the concession of WWS to private WaSCs involved a regression in productivity. From a policy perspective, regulators and managers of WaSCs at the international level can learn important lessons from the Chilean case to improve the productivity of the water industries in their countries.
Article
This paper evaluates the efficiency of water and sewerage companies (WaSCs) by introducing the lack of service quality as undesirable outputs. It also investigates whether the production frontier of WaSCs is overall constant returns to scale (CRS) or variable returns to scale (VRS) by using two different data envelopment analysis models. In a second-stage analysis, we study the influence of exogenous and endogenous variables on WaSC performance by applying non-parametric hypothesis tests. In a pioneering approach, the analysis covers 18 WaSCs from Chile, representing about 90 % of the Chilean urban population. The results evidence that the technology of the sample studied is characterized overall by CRS. Peak water demand, the percentage of external workers, and the percentage of unbilled water are the factors affecting the efficiency of WaSCs. From a policy perspective, the integration of undesirable outputs into the assessment of WaSC performance is crucial not to penalize companies that provide high service quality to customers.
Article
Contrary to the usual method of most studies that apply parametric methodologies, the current study does not assume a priori a functional form to represent the cost function. Instead, a large amount of functional forms are tested in order to find the most appropriate functional form for the true cost structure of utilities. The sample focuses on water utilities operating in Portugal during the period 2002-2008. The results show that there are substantial economies of output density, economies of size and economies of scope (in the joint supply of water supply and wastewater services) and, therefore, there are huge advantages in utilities merging.
Article
This paper empirically analyses the efficiency of urban water utilities using state-of-the-art methodology combining Data Envelopment Analysis (DEA) and a two-stage double bootstrap procedure. In the first stage, robust efficiency estimates are obtained with an improved DEA analysis. In the second stage, a truncated regression model and a double bootstrap procedure are used to estimate the effect of a set of environmental variables on unbiased DEA estimates. The findings suggest that the efficiency scores obtained after bias correction are significantly different to the original efficiency estimates. The results also show the existence of a significant relation between efficiency and several environmental variables including the proportion of water sourced from groundwater, customer density and residential consumption.
Article
Performance monitoring and benchmarking are increasingly becoming vital performance drivers especially in utilities where strong tariff incentive applications are not readily applicable. In this paper, I present performance improvement initiatives in National Water and Sewerage Corporation (NWSC) - Uganda, incorporating practical benchmarking and performance monitoring approaches. I also outline a detailed empirical study of the influence of commercial/customer orientation on technical efficiency using Stochastic Frontier Analysis (SFA) benchmarking techniques. I find that after a long spell of heavy engineering orientation in a water utility, a shift to significant commercial/customer orientation is positively associated with reduction in technical
Article
This paper provides a review of the recent institutional changes observed in the water sector in Chile. This review is then used to reflect the Chilean experience in the light of the results concerning institutional change found in existing literature on both institutional economics in general and water institutional economics in particular. These results relate to factors explaining institutional change and the role of endogenous insti-tutional features, such as path dependency and institutional linkages during the reform process. Against a brief description of the main features of the water sector in Chile, the paper provides an overview of Chilean water management institutions and the reforms process ongoing since the 1980s. The factors that motivated institutional changes in Chile's water management include ideology, transactions costs, interest-group behavior and path dependency. While the already observed institutional changes, such as the transferable water rights, water markets and urban water reforms, are all significant, further reforms are delayed by the deliberate legislative process required for changes as a result of the 1980 Constitution. Future water reforms in Chile, therefore, depend on a very difficult process of political reforms needed to change the 1980 Constitution and the 1981 Water Code.
Article
Received stochastic frontier analyses with panel data have relied on traditional fixed and random effects models. We propose extensions that circumvent two shortcomings of these approaches. The conventional panel data estimators assume that technical or cost inefficiency is time invariant. Second, the fixed and random effects estimators force any time invariant cross unit heterogeneity into the same term that is being used to capture the inefficiency. Inefficiency measures in these models may be picking up heterogeneity in addition to or even instead of inefficiency. A fixed effects model is extended to the stochastic frontier model using results that specifically employ the nonlinear specification. The random effects model is reformulated as a special case of the random parameters model. The techniques are illustrated in applications to the U.S. banking industry and a cross country comparison of the efficiency of health care delivery.
Article
This paper provides a parametric decomposition of a generalized Malmquist productivity index which takes into account scale economies. Unlike Balk (2001), the contribution of scale economies to productivity change is evaluated without recourse to scale efficiency measures, which are neither bounded for globally increasing, decreasing, or constant returns to scale technologies nor for ray-homogeneous technologies. An empirical application using panel data from Spanish savings banks is included. This application shows the advantages of the suggested method compared to Balk's approach. The results show an increase of total factor productivity which can be mainly attributed to technical progress and the positive effect of returns to scale.
Article
The introduction of directional distance functions has given researchers an alternative to Shephard distance functions. In this paper we conduct a Monte Carlo study to investigate the performance of distance functions as an approximation for models of technology. Our results indicate that quadratic representations of technology have better approximation properties than translog parameterizations. KeywordsDistance functions-Parameterization JEL ClassificationD24-C63
Article
In a context of increasing international concern about public cost savings, research interest in the waste sector has gradually emerged. The literature on waste cost and inefficiency, particularly the use of parametric and non-parametric methods has increased exponentially in the last years. This paper reviews the developments, themes, objectives, concerns and characteristics of this kind of research, by reviewing a comprehensive database consisting of more than 100 relevant papers on economic performance of the waste services were published since 1965. Based on the econometric and mathematical programming methods (cost and product ion frontiers) used so far, the paper identifies characteristics of the waste research community (such as the authors' case-studies, aims of research, methods adopted, among others). Finally, it also identifies the main targets in this research field, such as market structure, ownership, incentives (through regulation and legal mechanism) and performance assessment.
Article
This paper empirically analyzes the structure of the US water industry, using a multiproduct flexible cost function model with the amount of water delivered to final consumers recognized as endogenous. The cross-sectional econometric analysis focuses on measures of cost economies in water production, and their variation with network characteristics. The estimates reveal considerable scale economies in terms of volume, particularly for small utilities that tend to have less output density. These economies are, however, counteracted by simultaneous increases in customers and service area size, especially for large utilities. Overall, our results indicate that consolidation of small utilities might generate cost efficiencies, depending on the concurrent expansion of the network, but consolidation of already large utilities without corresponding increases in output density is not likely to be cost effective.
Article
The purpose of this study is to estimate a multivariate variable cost function in order to analyze the cost structure of a sample of Italian water distribution companies.The empirical results of this study could be used by the Italian Regulation Authority of this sector to improve the actual tariff regulation process.A variable cost function was estimated using panel data for a sample of 32 water distribution firms operating at the provincial level over the period 1991–1995. Results indicate the importance of explanatory variables such as price of labor, water loss and service area characteristics.Results also indicate the existence of economies of output and customer density and the presence of small diseconomies of scale.
Article
In this paper we estimate a variable cost function to analyze cost economies and technical change in the English water only sector over the 1995–2005 period. We jointly model the impact on costs of output, customer numbers and area size which allows us to consider both the vertical and horizontal (spatial) dimensions of water utilities' operations. Estimates suggest the existence of unexploited economies of output and customer density and small scale economies which appear to be increasing with population density. These findings suggest that moderate cost savings from prudent mergers could be expected; in particular, benefits of merging water utilities might be higher in more densely populated urban areas. Finally, technical change is found to be increasing over the sample period.
Article
Adjusting for the operational environment in studies of performance measurement is very important, otherwise the analysis may lead to unrealistic scores, especially when its influence on costs is high, such as in the water utilities. In this paper, we study the influence of exogenous variables on the water utilities performance by applying conditional efficiency measures based on the order-m method and its probabilistic formulation. We use a sample of 66 water utilities operating between 2002 and 2008, representing about 70% of the Portuguese population. Our research suggests that inefficiency of Portuguese water utilities is substantial for some utilities: several exogenous variables might influence it considerably. For example, regulation has a positive influence on efficiency but when drinking water supply and wastewater services are provided by the same utility or when the wholesale and retail activities are provided together, the performance is lower. The effect of ownership is inconclusive and the variables residential customers, water source, peak factor, and density of customers have a mixed influence on performance which varies according to their scores.
Article
This paper analyzes the cost structure of the French electricity distribution sector prior to the re-structuring reforms that have been initiated in 2005 and gradually implemented in the form of re-grouping certain activities across distribution units. The aim of this study is to assess the empirical evidence in support of these re-structuring measures. We explore the cost structure of the distribution units operating in France over the three year period. The data include 279 observations from 93 distribution units from 2003 to 2005, operating within the French electricity distribution network namely, Electricité Réseau Distribution France (ERDF). A Cobb-Douglas cost function is estimated using several specifications focusing on the analysis of the economies of scale and customer density. In order to account for the unobserved heterogeneity and its impacts on the economies of scale, we use a latent class specification. The results suggest that a majority of the distribution units can exploit statistically significant economies of scale. Further, the empirical analysis indicates that the unexploited economies of scale can vary considerably from one unit to another, not only because of variations in outputs but also because of the unobserved differences in networks and technological characteristics. In particular, the latent class approach can identify a group of distribution units that do not show any significant economies of scale. Further analysis suggests that such distributors are often located in metropolitan areas with high customer density.
Article
This study surveys the literature examining the privatization of state-owned enterprises (SOEs) We review the history of privatization, the theoretical and empirical evidence on the relative performance of state owned and privately owned firms, the types of privatization, if and by how much privatization has improved the performance of former SOEs in non-transition and transition countries, how investors in privatizations have fared, and the impact of privatization on the development of capital markets and corporate governance. In most settings privatization "works" in that the firms become more efficient, more profitable, and financially healthier, and reward investors.
The Impact of Privatisation on the Sustainability of Water Resources
  • M Y Al-Madfaei
Al-Madfaei, M.Y., 2017. The Impact of Privatisation on the Sustainability of Water Resources. IWA Publishing. Available at. https://www.iwapublishing.com/news/ impact-privatisation-sustainability-water-resources.
The use of water balance in determining the water loss strategy. Water Util
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At the frontiers of the rush for blue gold: water privatization and the human right to water
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Petrova, V., 2006. At the frontiers of the rush for blue gold: water privatization and the human right to water. Brookling J. Int. Law 31, 577.
Mathematics for Economists
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Ownership and performance in water services revisited: does private management really outperform public?
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SISS, 2015. Report about Water and Sewerage Services in Chile 2015. Available from. http://www.siss.gob.cl/577/w3-article-16141.html. Accessed in 7th April 2017. Su arez-Varela, M., de los Angeles García-Valiñas, M., Gonz alez-G omez, F., Picazo-Tadeo, A.J., 2017. Ownership and performance in water services revisited: does private management really outperform public? Water Resour. Manag. 31 (8), 2355e2373.