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Is big better? On scale and scope economies in the Portuguese water sector

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  • Marques, Rui Cunha
  • De Witte, Kristof

Abstract

The 'big is better' idea has recently been challenged in network industries. Scale economies are considered finite so that for the individual utility an optimal scale of operations arises. A similar observation yields for scope economies as joint production is not predicted univocally anymore. In the water sector, scale economies and joint production are preferred. Nevertheless, several countries are restructuring the sector in order to improve the scale and scope of operations. This article intends to provide some insights into this matter. We analyze the Portuguese water market structure using non-parametric techniques with data from the year 2005. After surveying the literature on scale and scope economies, we discuss the peculiarities of the Portuguese water sector. The paper confirms the natural monopoly features. Although scope economies are absent, it highlights scale economies. The optimal scale of the utilities is located between 160,000 and 180,000 inhabitants. As such, the Portuguese water sector optimally counts 60 water utilities.

Suggested Citation

  • Marques, Rui Cunha & De Witte, Kristof, 2011. "Is big better? On scale and scope economies in the Portuguese water sector," Economic Modelling, Elsevier, vol. 28(3), pages 1009-1016, May.
  • Handle: RePEc:eee:ecmode:v:28:y:2011:i:3:p:1009-1016
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    References listed on IDEAS

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    2. repec:eee:juipol:v:45:y:2017:i:c:p:84-96 is not listed on IDEAS
    3. Martins, Rita & Fortunato, Adelino, 2016. "Critical analysis of the Portuguese Water Industry Restructuring Plan," Utilities Policy, Elsevier, vol. 43(PB), pages 131-139.
    4. repec:eee:touman:v:36:y:2013:i:c:p:650-657 is not listed on IDEAS
    5. Andrea Guerrini & Giulia Romano & Bettina Campedelli, 2013. "Economies of Scale, Scope, and Density in the Italian Water Sector: A Two-Stage Data Envelopment Analysis Approach," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 27(13), pages 4559-4578, October.
    6. Zschille, Michael, 2012. "Consolidating the Water Industry: An Analysis of the Potential Gains from Horizontal Integration in a Conditional Efficiency Framework," CEPR Discussion Papers 8737, C.E.P.R. Discussion Papers.
    7. da Cruz, Nuno Ferreira & Marques, Rui Cunha, 2014. "Revisiting the determinants of local government performance," Omega, Elsevier, vol. 44(C), pages 91-103.
    8. Michael Zschille, 2014. "Nonparametric measures of returns to scale: an application to German water supply," Empirical Economics, Springer, vol. 47(3), pages 1029-1053, November.
    9. Michael Zschille, 2014. "Marktstrukturen in der Trinkwasserversorgung," DIW Roundup: Politik im Fokus 43, DIW Berlin, German Institute for Economic Research.
    10. Michael Zschille, 2015. "Consolidating the water industry: an analysis of the potential gains from horizontal integration in a conditional efficiency framework," Journal of Productivity Analysis, Springer, vol. 44(1), pages 97-114, August.
    11. Michael Zschille, 2016. "Cost Structure and Economies of Scale in German Water Supply," Discussion Papers of DIW Berlin 1576, DIW Berlin, German Institute for Economic Research.
    12. repec:spr:waterr:v:31:y:2017:i:8:d:10.1007_s11269-017-1697-3 is not listed on IDEAS
    13. repec:eee:juipol:v:48:y:2017:i:c:p:92-102 is not listed on IDEAS
    14. Romano, Giulia & Guerrini, Andrea, 2011. "Measuring and comparing the efficiency of water utility companies: A data envelopment analysis approach," Utilities Policy, Elsevier, vol. 19(3), pages 202-209.
    15. Michael Zschille, 2012. "Consolidating the Water Industry: An Analysis of the Potential Gains from Horizontal Integration in a Conditional Efficiency Framework," Discussion Papers of DIW Berlin 1187, DIW Berlin, German Institute for Economic Research.

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