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