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Estimation of the Return on Capital in Municipal Water Systems

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  • Vitaliano, Donald F.

Abstract

Seventy–five small, municipal water systems are analyzed to determine if they employ the least–cost long–run capital stock, and if they minimize cost given the observed level of capital. The social cost of capital exceeds the estimated return on investment by more than four times, and actual production costs are 36 percent above minimum costs. Median capital stock inefficiency, due to overinvestment, is $70,500 per system, and median cost inefficiency is $24,300. Extrapolated to the seven thousand similar systems nationwide, the combined cost of these two types of inefficiency is $663.6 million per year.

Suggested Citation

  • Vitaliano, Donald F., 2005. "Estimation of the Return on Capital in Municipal Water Systems," National Tax Journal, National Tax Association;National Tax Journal, vol. 58(4), pages 685-696, December.
  • Handle: RePEc:ntj:journl:v:58:y:2005:i:4:p:685-96
    DOI: 10.17310/ntj.2005.4.04
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    Cited by:

    1. Jeffrey Andrew Hemmeter, 2006. "Estimating Public Library Efficiency Using Stochastic Frontiers," Public Finance Review, , vol. 34(3), pages 328-348, May.
    2. Donald Vitaliano, 2015. "Public Enterprise Efficiency: The Case of the New York Canals," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 46(2), pages 169-182, March.

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