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Productivity growth and price regulation of Slovenian water distribution utilities

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Author Info

  • Massimo Filippini

    ()
    (Swiss Federal Institute of Technology Zurich and University of Lugano, Faculty of Economics, Switzerland)

  • Nevenka Hrovatin

    (University of Ljubljana, Faculty of Economics, Ljubljana, Slovenia)

  • Jelena Zoric

    (University of Ljubljana, Faculty of Economics, Ljubljana, Slovenia)

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    Abstract

    This paper aims to analyse the price regulation method and performance of the water industry in Slovenia. A stochastic cost frontier model is employed to estimate and decompose the total factor productivity (TFP) growth of water distribution utilities in the 1997-2003 period. The main goal is to find out whether the lack of proper incentives to improve performance has resulted in the low TFP growth of Slovenian water distribution utilities. The evidence suggests that cost inefficiencies are present in water utilities, which indicates considerable cost saving potential in the analysed industry. Technical change is found to have positively affected the TFP growth over time, while cost inefficiency levels remained essentially unchanged. Overall, the average annual TFP growth in the analysed period is estimated to be only slightly above zero, which is a relatively poor result. This can largely be contributed to the present institutional and regulatory setting that does not stimulate utilities to improve productivity. Therefore, the introduction of an independent regulatory agency and an incentive-based price regulation scheme should be seriously considered in order to enhance the performance of Slovenian water distribution utilities.

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    Bibliographic Info

    Article provided by University of Rijeka, Faculty of Economics in its journal Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics.

    Volume (Year): 28 (2010)
    Issue (Month): 1 ()
    Pages: 89-112

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    Handle: RePEc:rfe:zbefri:v:28:y:2010:i:1:p:89-112

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    Related research

    Keywords: TFP growth; SFA; cost efficiency; water distribution utilities; price regulation;

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    References

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    1. Aigner, Dennis & Lovell, C. A. Knox & Schmidt, Peter, 1977. "Formulation and estimation of stochastic frontier production function models," Journal of Econometrics, Elsevier, vol. 6(1), pages 21-37, July.
    2. John Ashton, 2000. "Cost efficiency in the UK water and sewerage industry," Applied Economics Letters, Taylor & Francis Journals, vol. 7(7), pages 455-458.
    3. Bhattacharyya, Arunava & Harris, Thomas R. & Narayanan, Rangesan & Raffiee, Kambiz, 1995. "Specification and estimation of the effect of ownership on the economic efficiency of the water utilities," Regional Science and Urban Economics, Elsevier, vol. 25(6), pages 759-784, December.
    4. Baldwin, Robert & Cave, Martin, 1999. "Understanding Regulation: Theory, Strategy, and Practice," OUP Catalogue, Oxford University Press, number 9780198774389.
    5. Youn Kim, H. & Clark, Robert M., 1988. "Economies of scale and scope in water supply," Regional Science and Urban Economics, Elsevier, vol. 18(4), pages 479-502, November.
    6. Antonioli, B. & Filippini, M., 2001. "The use of a variable cost function in the regulation of the Italian water industry," Utilities Policy, Elsevier, vol. 10(3-4), pages 181-187.
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