Driving forces for consolidation or fragmentation of the US water utility industry: A cost function approach with endogenous output

Torres, Marcelo; Paul, Catherine J. Morrison

doi:10.1016/j.jue.2005.09.003

Cited by 89 publications

(48 citation statements)

References 25 publications

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“…In line with previous literature that considered various countries [6,16,45,67,69,72,74,75], we find that economies of density also characterize the Danish water industry, but only when the wastewater sector is studied. Figure 3 shows the relationship between population density and VRSTE.…”

Section: Resultssupporting

confidence: 91%

“…This is confirmed by the negative estimator for SIZE when VRSTE is regressed: The high significance shows diseconomies of scale for pure technical efficiency in the wastewater sector. This evidence contrasts with research demonstrating economies of scale in water and/or wastewater sectors, at least to a certain threshold [22,30,[69][70][71][72]. For Italy, Romano and Guerrini [24] found that firms serving more than 50,000 customers achieve better performance than those serving a smaller population.…”

Section: Resultsmentioning

confidence: 77%

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The Effects of Operational and Environmental Variables on Efficiency of Danish Water and Wastewater Utilities

Guerrini

Romano

Leardini

et al. 2015

Water

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Efficiency improvement is one of three patterns a public utility should follow in order to get funds for investments realization. The other two are recourse to bank loans or to private equity and tariff increase. Efficiency can be improved, for example, by growth and vertical integration and may be conditioned by environmental variables, such as customer and output density. Prior studies into the effects of these variables on the efficiency of water utilities do not agree on certain points (e.g., scale and economies of scope) and rarely consider others (e.g., density economies). This article aims to contribute to the literature by analysing the efficiency of water utilities in Denmark, observing the effects of operational and environmental variables. The method is based on two-stage Data Envelopment Analysis (DEA) applied to 101 water utilities. We found that the efficiency of the water sector was not affected by the observed variables, whereas that of wastewater was improved by smaller firm size, vertical integration strategy, and higher population density.

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Section: Resultssupporting

confidence: 91%

Section: Resultsmentioning

confidence: 77%

The Effects of Operational and Environmental Variables on Efficiency of Danish Water and Wastewater Utilities

Guerrini

Romano

Leardini

et al. 2015

Water

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“…A second set of activities deals with the collection of waste water through the sewage network and the disposal of the effluent in the sewage treatment works so that water can be returned to its natural environment. There is a body of literature that attempts to model water and sewerage technology and cost structure (among the others, see the studies of Fabbri and Fraquelli, 2000;Garcia and Thomas, 2001;Mizutani and Urakami, 2001;Torres and Morrison Paul, 2006). The choice of inputs and outputs described below is generally consistent with this literature.…”

mentioning

confidence: 73%

“…In the first case, the input use is minimized given a certain amount of output, while in the second the output is maximized for a given level of inputs. Generally, the adoption of an input-oriented framework is preferred when public utilities are considered as the demand of service the suppliers must provide may be seen as exogenous (see Torres and Morrison Paul, 2006, for an application with endogenous output). 9 For a comprehensive description of DEA models, see Thanassoulis (2001) and Coelli et al (2005).…”

mentioning

confidence: 99%

Regulation and Efficiency Incentives: Evidence from the England and Wales Water and Sewerage Industry

Erbetta¹,

Cave²

2007

Review of Network Economics

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This paper evaluates the impact of the tightening in price cap by OFWAT and of other operational factors on the efficiency of water and sewerage companies in England and Wales using a mixture of data envelopment analysis and stochastic frontier analysis. Previous empirical results suggest that the regulatory system introduced at privatization was lax. The 1999 price review signaled a tightening in regulation which is shown to have led to a significant reduction in technical inefficiency. The new economic environment set by price-cap regulation acted to bring inputs closer to their cost-minimizing levels from both a technical and allocative perspective. IntroductionThe England and Wales water and sewerage industry was privatized in 1989 and thenceforth has been subject to a sequence of five-year price controls in the form of price caps. Price-cap regulation is set out to be a high-powered incentive scheme. However, previous empirical findings have shown that the cap introduced at privatization in 1989 had been lax (Saal and Parker, 2000), in the sense of allowing real price increases and the evidence that the first price review in 1994 produced efficiency gains is weak Parker, 2001 and. This may be explained by the double duty of the regulator to encourage a higher level of efficiency and provide the companies with the financial resources to support their investment programs. The 1999 price review signaled a change in the implementation of regulatory policy by imposing for the first time a real price reduction.

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“…The output variables are total water delivered to consumers, the number of connected properties and the total area served by the company. This exact output specification has been previously employed for English and Welsh water companies in Bottasso & Conti (2009b), and is consistent with a well-established literature suggesting the need to fully control for volumes, connections, and a utility's geographic scale (See, for example Torres & Morrison Paul, 2006) Control variables are included so as to allow for differences in production technology that may result from differences in operating environment. For example, water could come from impounding reservoirs, boreholes or rivers.…”

Section: Data and Empirical Specificationmentioning

confidence: 63%

Regulatory incentives to water losses reduction: the case of England and Wales

2017

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In recent years, England and Wales have suffered droughts. This unusual situation defies the common belief that the British climate provides abundant water resources and has prompted the regulatory authorities to impose bans on superfluous uses of water. Furthermore, a large percentage of households in England consume unmetered water which is detrimental to water saving efforts. Given this context, we estimate the shadow price of water using a panel data from reports published by the Office of Water Services (Ofwat) for the period 1996 to 2010 (three regulatory periods). These shadow prices are derived from a parametric multi-output multi-input input distance function characterized by a translog technology. Following O'Donnell and Coelli (2005), we use a Bayesian econometric framework in order to impose regularity -monotonicity and curvature -conditions on a high-flexible technology. Consequently, our results can be interpreted at the firm level without requiring the need to base analysis on the averages. Our estimations offer guidance for regulation purposes and provide an assessment of how the water supply companies deal with water losses under each regulatory period. The relevance of the study is quite general as water scarcity is a problem that will become more important with population growth and the impact of climate change. 2

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Driving forces for consolidation or fragmentation of the US water utility industry: A cost function approach with endogenous output

Cited by 89 publications

References 25 publications

The Effects of Operational and Environmental Variables on Efficiency of Danish Water and Wastewater Utilities

The Effects of Operational and Environmental Variables on Efficiency of Danish Water and Wastewater Utilities

Regulation and Efficiency Incentives: Evidence from the England and Wales Water and Sewerage Industry

Regulatory incentives to water losses reduction: the case of England and Wales

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