The role of environmental variables on the efficiency of water and sewerage companies: a case study of Chile

Abstract

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.

Water pollution in wastewater treatment plants: An efficiency analysis with undesirable output

“…Looking at the various contributions, the undesirable outputs encompass unintended bad consequences (or negative externalities) which can be largely attributed to the production process, given the fact that producing good outputs is accompanied by the production of bads (Färe et al, 2014). Picazo-Tadeo et al (2008) consider as non-desirable output the unaccounted-for water losses, De Witte and Marques (2010) and Hernández-Sancho et al (2012) use the water losses, Molinos-Senante et al (2015b and Romano et al (2017) introduce variables representing the lack of service quality such as the value of the penalties, the number of complaints, the number of unplanned interruptions and the number of connected water service properties with water pressure below a reference level. Concerning the WWTPs, only Molinos-Senante et al (2014a) deal with undesirable output by considering the CO 2 emission resulting from the WWTP activity.…”

“…Referring to the undesirable output specifically in the water sector, the DDF is considered a very suitable approach and hence it is the most developed method (e.g. Picazo-Tadeo et al, 2008Molinos-Senante et al, 2014a, 2015b. As Fukuyama and Weber (2009) underline, the radial DDF may overestimate the efficiency when there exist non-zero slacks.…”

“…Looking at the wastewater treatment plant as a production process, the presence of nitrogen in the treated water can be considered an undesirable output. In the water sector efficiency literature, few papers deal with undesirable outputs (Picazo-Tadeo et al, 2008; De Witte and Marques, 2010;Hernández-Sancho et al, 2012;Molinos-Senante et al, 2014a, 2015b and none of them are related to the quality of the outgoing water in terms of leftover pollutants. In line with part of the existing literature on undesirable output, the WWTP performance is evaluated using a Non-radial Directional Distance Function (NDDF) approach.…”

Paying Returns to Shareholders of Water Utilities: Evidence from Italy

“…Non-parametric tests do not need any distributional assumption underlined. In accordance with previous studies about the water industry [28][29][30], we used the Mann-Whitney U (for the variables ownership, scope of operations, and group) and Kruskal-Wallis (for size and localization) non-parametric tests to test whether or not there were statistically significant differences among clusters according to the variables under scrutiny. The null hypothesis posed that clusters originated from the same populations.…”

Urban water pricing in Chile: cost recovery, affordability, and water conservation

“…Operators who have not covered O&M costs, in general, present higher O&M than those of the efficient WSS model firm used during the tariff setting process . In fact, there is evidence that some of the WSS operators are not efficient . The results indicate that Chilean WSS operators present an average efficiency score of 0.839, which indicates that on average, they could reduce their inputs by approximately 16%, while maintaining the same production level and increasing their possibilities of recovering O&M costs.…”