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Consolidating the water industry: an analysis of the potential gains from horizontal integration in a conditional efficiency framework

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  • Michael Zschille

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Abstract

The German potable water supply industry is regarded highly fragmented, thus preventing efficiency improvements that could happen through consolidation. Focusing on a hypothetical restructuring of the industry, we use a cross-section sample of 364 German water utilities in 2006, applying Data Envelopment Analysis, to analyze the potential efficiency gains from hypothetical mergers between water utilities at the county level. A conditional efficiency framework is applied to account for the water utilities’ operating environments. A conditional order-m approach is applied for the detection of potential outlying observations. Merger gains are decomposed into a technical efficiency effect, a harmony effect and a scale effect. The greatest efficiency improvement potentials turn out to result from reducing individual inefficiencies while pure merger gains are found to be low. The results suggest improving incentives for efficient operations in water supply and a consolidation of the smallest water utilities. Copyright Springer Science+Business Media New York 2015

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  • 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.
  • Handle: RePEc:kap:jproda:v:44:y:2015:i:1:p:97-114
    DOI: 10.1007/s11123-014-0407-x
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    Cited by:

    1. Devicienti, Francesco & Manello, Alessandro & Vannoni, Davide, 2017. "Technical efficiency, unions and decentralized labor contracts," European Journal of Operational Research, Elsevier, vol. 260(3), pages 1129-1141.
    2. Bădin, Luiza & Daraio, Cinzia & Simar, Léopold, 2019. "A bootstrap approach for bandwidth selection in estimating conditional efficiency measures," European Journal of Operational Research, Elsevier, vol. 277(2), pages 784-797.
    3. Caroline Stiel, 2017. "Modern Public Enterprises: Organisational Innovation and Productivity," Discussion Papers of DIW Berlin 1713, DIW Berlin, German Institute for Economic Research.
    4. repec:kap:hcarem:v:20:y:2017:i:4:d:10.1007_s10729-016-9365-3 is not listed on IDEAS
    5. Cinzia Daraio & Léopold Simar & Paul W. Wilson, 2018. "Fast and Efficient Computation of Directional Distance Estimators," DIAG Technical Reports 2018-05, Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza".
    6. 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.
    7. repec:spr:waterr:v:31:y:2017:i:8:d:10.1007_s11269-016-1376-9 is not listed on IDEAS
    8. Alexandr Akimov & Paul Simshauser, 2018. "Performance measurement in Australian water utilities: Current state and future directions," Discussion Papers in Finance finance:201802, Griffith University, Department of Accounting, Finance and Economics.

    More about this item

    Keywords

    Water supply; Horizontal integration; Data Envelopment Analysis; Conditional efficiency; Nonparametric estimation; C14; L22; L95; Q25;

    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
    • L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water

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