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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.

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Bibliographic Info

Article provided by National Tax Association in its journal National Tax Journal.

Volume (Year): 58 (2005)
Issue (Month): 4 (December)
Pages: 685-96

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Handle: RePEc:ntj:journl:v:58:y:2005:i:4:p:685-96

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  1. William Greene, 2003. "Simulated Likelihood Estimation of the Normal-Gamma Stochastic Frontier Function," Journal of Productivity Analysis, Springer, Springer, vol. 19(2), pages 179-190, April.
  2. Holtz-Eakin, Douglas, 1994. "Public-Sector Capital and the Productivity Puzzle," The Review of Economics and Statistics, MIT Press, vol. 76(1), pages 12-21, February.
  3. Greene, William H., 1980. "On the estimation of a flexible frontier production model," Journal of Econometrics, Elsevier, Elsevier, vol. 13(1), pages 101-115, May.
  4. Martin Feldstein, 1982. "Capital Taxation," NBER Working Papers 0877, National Bureau of Economic Research, Inc.
  5. Braeutigam, Ronald R. & Daughety, Andrew F., 1983. "On the estimation of returns to scale using variable cost functions," Economics Letters, Elsevier, Elsevier, vol. 11(1-2), pages 25-31.
  6. Aigner, Dennis & Lovell, C. A. Knox & Schmidt, Peter, 1977. "Formulation and estimation of stochastic frontier production function models," Journal of Econometrics, Elsevier, Elsevier, vol. 6(1), pages 21-37, July.
  7. Aschauer, David Alan, 1989. "Is public expenditure productive?," Journal of Monetary Economics, Elsevier, Elsevier, vol. 23(2), pages 177-200, March.
  8. Greene, William H., 1990. "A Gamma-distributed stochastic frontier model," Journal of Econometrics, Elsevier, Elsevier, vol. 46(1-2), pages 141-163.
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