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Service quality, scale economies and ownership: an econometric analysis of water supply costs

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  • François Destandau
  • Serge Garcia

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Abstract

Issues related to service quality are crucial for water utility management and regulation. Omitting these aspects, especially when they are treated as exogenous, can lead to large biases in estimating cost functions as well as to misleading information concerning technology. In this article, we integrate the output multi-dimension in the cost function, considering delivered water volume and service quality as being endogenous. Network-related scale measures and private versus public ownership are investigated with the objective of evaluating how endogenous quality may affect their impact on costs. A translog cost model is estimated from a dataset of US water utilities. It is shown that including the quality level of the delivered services has a significant impact on scale economies and ownership effects. Significant economies of scope confirm the existence of trade-offs between water production and service quality. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • François Destandau & Serge Garcia, 2014. "Service quality, scale economies and ownership: an econometric analysis of water supply costs," Journal of Regulatory Economics, Springer, vol. 46(2), pages 152-182, October.
  • Handle: RePEc:kap:regeco:v:46:y:2014:i:2:p:152-182
    DOI: 10.1007/s11149-014-9250-2
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    Cited by:

    1. Jayanath Ananda & Nicholas Pawsey, 2019. "Benchmarking service quality in the urban water industry," Journal of Productivity Analysis, Springer, vol. 51(1), pages 55-72, February.
    2. Miguel García-Rubio & Cecilia Tortajada & Francisco González-Gómez, 2016. "Privatising Water Utilities and User Perception of Tap Water Quality: Evidence from Spanish Urban Water Services," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 30(1), pages 315-329, January.
    3. Miguel A. García-Rubio & Cecilia Tortajada & Francisco González-Gómez, 2016. "Privatising Water Utilities and User Perception of Tap Water Quality: Evidence from Spanish Urban Water Services," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 30(1), pages 315-329, January.
    4. Augusto Mercadier & Walter Cont & Gustavo Ferro, 2016. "Economies of scale in Peru’s water and sanitation sector," Journal of Productivity Analysis, Springer, vol. 45(2), pages 215-228, April.

    More about this item

    Keywords

    Water utilities; Endogenous output and quality; Cost economies; Private vs. public ownership; L25; L33; L95; R15;

    JEL classification:

    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
    • L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities
    • R15 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Econometric and Input-Output Models; Other Methods

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