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Is a little sunshine all we need? On the impact of sunshine regulation on profits, productivity and prices in the Dutch drinking water sector

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  • Kristof De Witte
  • David S. Saal

Abstract

This paper analyzes the conduct of publicly owned monopolistic utilities regulated by a voluntary sunshine regulatory model (i.e. publication of the performances of utilities). In particular, we examine the behaviour of Dutch drinking water utilities before and after the introduction of the sunshine regulation. As during the period 1992-2006 several alternative regulatory reforms including privatization, yardstick competition and profit regulation were also seriously considered, we examine how the discussion and possible implementation of these reforms influenced the behaviour of the utilities. By decomposing profit change into its economic drivers (quantity effect, price effect, operating efficiency, technical progress, scale, etc.), our results suggest that in an appropriate political and institutional context, sunshine regulation can be an effective and appropriate mean of insuring that publicly organised services are efficiently and profitably provided. In methodological terms, the profit decomposition is extended to robust (i.e. allowing for stochastic elements) and conditional (i.e. accounting for heterogeneity) non-parametric efficiency measures.

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Bibliographic Info

Paper provided by Katholieke Universiteit Leuven, Centrum voor Economische Studiën in its series Center for Economic Studies - Discussion papers with number ces0828.

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Date of creation: Oct 2008
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Handle: RePEc:ete:ceswps:ces0828

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Keywords: Regulation; Drinking water utilities; Profit decomposition; Data Envelopment Analysis;

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  1. Charnes, A. & Cooper, W. W. & Rhodes, E., 1978. "Measuring the efficiency of decision making units," European Journal of Operational Research, Elsevier, vol. 2(6), pages 429-444, November.
  2. Kristof De Witte & Elbert Dijkgraaf, 2007. "Mean and Bold?," Tinbergen Institute Discussion Papers 07-092/3, Tinbergen Institute.
  3. Cazals, Catherine & Florens, Jean-Pierre & Simar, Leopold, 2002. "Nonparametric frontier estimation: a robust approach," Journal of Econometrics, Elsevier, vol. 106(1), pages 1-25, January.
  4. Damme, E.E.C. van & Mulder, K.J., 2006. "Transparant en eerlijk geprijsd water," Open Access publications from Tilburg University urn:nbn:nl:ui:12-181560, Tilburg University.
  5. Cinzia Daraio & Leopold Simar, 2005. "Conditional Nonparametric Frontier Models for Convex and Non Convex Technologies: a Unifying Approach," LEM Papers Series 2005/12, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  6. Cinzia Daraio & Léopold Simar, 2005. "Introducing Environmental Variables in Nonparametric Frontier Models: a Probabilistic Approach," Journal of Productivity Analysis, Springer, vol. 24(1), pages 93-121, 09.
  7. Kristof De Witte & Rui C. Marques, 2008. "Capturing the environment, a metafrontier approach to the drinking water sector," Center for Economic Studies - Discussion papers ces0804, Katholieke Universiteit Leuven, Centrum voor Economische Studiën.
  8. E. Grifell-Tatjé & C. A. K. Lovell, 1999. "Profits and Productivity," Management Science, INFORMS, vol. 45(9), pages 1177-1193, September.
  9. David S Saal & David Parker, 2000. "The impact of privatization and regulation on the water and sewerage industry in England and Wales: a translog cost function model," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 21(6), pages 253-268.
  10. Mariano Tommasi & Pablo T. Spiller, 2004. "The Institutions of Regulation," Working Papers 67, Universidad de San Andres, Departamento de Economia, revised Mar 2004.
  11. Fried, Harold O. & Lovell, C. A. Knox & Schmidt, Shelton S. (ed.), 2008. "The Measurement of Productive Efficiency and Productivity Growth," OUP Catalogue, Oxford University Press, number 9780195183528, Octomber.
  12. Massimo Filippini & Nevenka Hrovatin & Jelena Zorić, 2008. "Cost efficiency of Slovenian water distribution utilities: an application of stochastic frontier methods," Journal of Productivity Analysis, Springer, vol. 29(2), pages 169-182, April.
  13. Saal, David S & Parker, David, 2001. "Productivity and Price Performance in the Privatized Water and Sewerage Companies of England and Wales," Journal of Regulatory Economics, Springer, vol. 20(1), pages 61-90, July.
  14. Crew, Michael A & Kleindorfer, Paul R, 2002. "Regulatory Economics: Twenty Years of Progress?," Journal of Regulatory Economics, Springer, vol. 21(1), pages 5-22, January.
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Cited by:
  1. Driffield, Nigel L. & Mickiewicz, Tomasz & Temouri, Yama, 2013. "Institutional reforms, productivity and profitability: From rents to competition?," Journal of Comparative Economics, Elsevier, vol. 41(2), pages 583-600.
  2. Estache, Antonio & Grifell-Tatjé, Emili, 2011. "Assessing the impact of Mali’s water privatization across stakeholders," CEPR Discussion Papers 8717, C.E.P.R. Discussion Papers.

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