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The Structure of Municipal Water Supply Costs: Application to a Panel of French Local Communities

  • Serge Garcia
  • Alban Thomas

Network losses and returns are importantissues for water resource management, that are addressed in thispaper by modeling the structure of production for municipal waterutilities with two outputs: water sold to final customers andwater network losses. We propose a measure of economies of scopeto assess the benefit associated with joint production of waterfor final customers and water losses, and several measures ofreturns to evaluate potential gains in exploiting technologicalflexibility of water networks. We estimate the cost structureof water utilities using a GMM procedure with a Translog costfunction and panel data. Estimation results reveal a positivedegree of economies of scope, and short-run returns to productiondensity and returns to customer density that are not significantlydifferent from 1. Significant economies of scale indicate thatlocal communities may benefit from merging into water districts. Copyright Kluwer Academic Publishers 2001

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File URL: http://hdl.handle.net/10.1023/A:1011142901799
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Article provided by Springer in its journal Journal of Productivity Analysis.

Volume (Year): 16 (2001)
Issue (Month): 1 (July)
Pages: 5-29

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Handle: RePEc:kap:jproda:v:16:y:2001:i:1:p:5-29
Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=100296

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  1. Schmidt, Peter, 1990. "Three-stage least squares with different instruments for different equations," Journal of Econometrics, Elsevier, vol. 43(3), pages 389-394, March.
  2. Schankerman, Mark & Nadiri, M. Ishaq, 1986. "A test of static equilibrium models and rates of return to quasi-fixed factors, with an application to the Bell system," Journal of Econometrics, Elsevier, vol. 33(1-2), pages 97-118.
  3. White, Halbert, 1980. "Using Least Squares to Approximate Unknown Regression Functions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 21(1), pages 149-70, February.
  4. Ford, J L & Warford, J J, 1969. "Cost Functions for the Water Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 18(1), pages 53-63, November.
  5. 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.
  6. Cornwell, Christopher & Schmidt, Peter & Wyhowski, Donald, 1992. "Simultaneous equations and panel data," Journal of Econometrics, Elsevier, vol. 51(1-2), pages 151-181.
  7. Caves, Douglas W & Christensen, Laurits R & Swanson, Joseph A, 1981. "Productivity Growth, Scale Economies, and Capacity Utilization in U.S. Railroads, 1955-74," American Economic Review, American Economic Association, vol. 71(5), pages 994-1002, December.
  8. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, June.
  9. Baumol, William J, 1977. "On the Proper Cost Tests for Natural Monopoly in a Multiproduct Industry," American Economic Review, American Economic Association, vol. 67(5), pages 809-22, December.
  10. Renzetti, Steven, 1992. "Evaluating the welfare effects of reforming municipal water prices," Journal of Environmental Economics and Management, Elsevier, vol. 22(2), pages 147-163, March.
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