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Productivity change in the water industry in England and Wales: application of the meta-Malmquist index

Author

Listed:
  • M C A S Portela

    (Portuguese Catholic University, Porto, Portugal)

  • E Thanassoulis

    (Aston Business School, Aston University, UK)

  • A Horncastle

    (Oxera, UK)

  • T Maugg

    (Oxera, UK)

Abstract

This paper uses a meta-Malmquist index for measuring productivity change of the water industry in England and Wales and compares this to the traditional Malmquist index. The meta-Malmquist index computes productivity change with reference to a meta-frontier, it is computationally simpler and it is circular. The analysis covers all 22 UK water companies in existence in 2007, using data over the period 1993–2007. We focus on operating expenditure in line with assessments in this field, which treat operating and capital expenditure as lacking substitutability. We find important improvements in productivity between 1993 and 2005, most of which were due to frontier shifts rather than catch up to the frontier by companies. After 2005, the productivity shows a declining trend. We further use the meta-Malmquist index to compare the productivities of companies at the same and at different points in time. This shows some interesting results relating to the productivity of each company relative to that of other companies over time, and also how the performance of each company relative to itself over 1993–2007 has evolved. The paper is grounded in the broad theory of methods for measuring productivity change, and more specifically on the use of circular Malmquist indices for that purpose. In this context, the contribution of the paper is methodological and applied. From the methodology perspective, the paper demonstrates the use of circular meta-Malmquist indices in a comparative context not only across companies but also within company across time. This type of within-company assessment using Malmquist indices has not been applied extensively and to the authors’ knowledge not to the UK water industry. From the application perspective, the paper throws light on the performance of UK water companies and assesses the potential impact of regulation on their performance. In this context, it updates the relevant literature using more recent data.

Suggested Citation

  • M C A S Portela & E Thanassoulis & A Horncastle & T Maugg, 2011. "Productivity change in the water industry in England and Wales: application of the meta-Malmquist index," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 62(12), pages 2173-2188, December.
  • Handle: RePEc:pal:jorsoc:v:62:y:2011:i:12:p:2173-2188
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    Citations

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    Cited by:

    1. Dan He & Peng Gao & Zhijing Sun & Yui-yip Lau, 2017. "Measuring Water Transport Efficiency in the Yangtze River Economic Zone, China," Sustainability, MDPI, Open Access Journal, vol. 9(12), pages 1-13, December.
    2. Alexandros Maziotis & María Molinos-Senante & Ramon Sala-Garrido, 2017. "Assesing the Impact of Quality of Service on the Productivity of Water Industry: a Malmquist-Luenberger Approach for England and Wales," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 31(8), pages 2407-2427, June.
    3. María Molinos-Senante & Ramon Sala-Garrido, 2017. "Decomposition of Productivity Growth of Water and Sewerage Companies: An Empirical Approach for Chile," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 31(13), pages 4309-4321, October.
    4. James A. C. Ryan & Matthew C. Ives & Ian M. Dunham, 2019. "The impact of cost of capital reductions on regulated water utilities in England and Wales: an analysis of isomorphism and stakeholder outcomes," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 23(1), pages 259-287, March.
    5. Molinos-Senante, María & Maziotis, Alexandros & Sala-Garrido, Ramón, 2014. "The Luenberger productivity indicator in the water industry: An empirical analysis for England and Wales," Utilities Policy, Elsevier, vol. 30(C), pages 18-28.
    6. Mohsen Afsharian, 0. "A metafrontier-based yardstick competition mechanism for incentivising units in centrally managed multi-group organisations," Annals of Operations Research, Springer, vol. 0, pages 1-20.
    7. María Molinos-Senante & Alexandros Maziotis & Ramon Sala-Garrido, 2017. "Assessment of the Total Factor Productivity Change in the English and Welsh Water Industry: a Färe-Primont Productivity Index Approach," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 31(8), pages 2389-2405, June.
    8. Maziotis, Alexandros & Saal, David S. & Thanassoulis, Emmanuel, 2013. "A Methodology to Propose the X-Factor in the Regulated English and Welsh Water And Sewerage Companies," Climate Change and Sustainable Development 146438, Fondazione Eni Enrico Mattei (FEEM).
    9. M. Portela & A. Camanho & A. Keshvari, 2013. "Assessing the evolution of school performance and value-added: trends over four years," Journal of Productivity Analysis, Springer, vol. 39(1), pages 1-14, February.
    10. Afsharian, Mohsen & Ahn, Heinz & Harms, Sören Guntram, 2019. "Performance comparison of management groups under centralised management," European Journal of Operational Research, Elsevier, vol. 278(3), pages 845-854.
    11. Mohsen Afsharian & Heinz Ahn, 2015. "The overall Malmquist index: a new approach for measuring productivity changes over time," Annals of Operations Research, Springer, vol. 226(1), pages 1-27, March.
    12. Maziotis, Alexandros & Saal, David S. & Thanassoulis, Emmanuel & Molinos-Senante, María, 2016. "Price-cap regulation in the English and Welsh water industry: A proposal for measuring productivity performance," Utilities Policy, Elsevier, vol. 41(C), pages 22-30.
    13. Afsharian, Mohsen & Podinovski, Victor V., 2018. "A linear programming approach to efficiency evaluation in nonconvex metatechnologies," European Journal of Operational Research, Elsevier, vol. 268(1), pages 268-280.

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