Consolidating the Water Industry: An Analysis of the Potential Gains from Horizontal Integration in a Conditional Efficiency Framework
AbstractThe German potable water supply industry is regarded as being highly fragmented, thus inhibiting high potentials for efficiency improvements through consolidation. Focusing on a hypothetical restructuring of the industry, we apply Data Envelopment Analysis (DEA) to analyze the potential efficiency gains from mergers between water utilities at the county level. A conditional efficiency framework is used to account for the operating environment. Highest efficiency improvement potentials turn out to result from reducing individual inefficiencies. The majority of the 84 merger cases is characterized by merger gains, which are decomposed into a technical efficiency effect, a harmony effect and a scale effect. The results suggest to improve incentives for efficient operations in water supply and a consolidation of the industry structure.
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Bibliographic InfoPaper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 1187.
Length: 33 p.
Date of creation: 2012
Date of revision:
Water Supply; Horizontal Integration; Data Envelopment Analysis; Conditional Efficiency; Nonparametric Estimation;
Find related papers by JEL classification:
- C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
- L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
- L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
- L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities
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