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Nonparametric measures of returns to scale: an application to German water supply

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  • Michael Zschille

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Abstract

The evaluation of market structures and the quantification of returns to scale in network industries usually are of high interest for researchers and policy makers. Regarding the debate on optimal market structures in German potable water supply, we use a cross-sectional sample of 364 German water utilities observed in 2006 to derive a nonparametric measure of scale elasticity for the water industry. The data sample is validated by applying a super-efficiency approach and a statistical testing procedure for outlier detection. Besides using a standard data envelopment analysis approach, a conditional efficiency approach is applied to account for the water utilities’ operating environments. The results indicate non-decreasing returns to scale for the majority of water utilities and constant or non-increasing returns for larger utilities. Optimal firm size is found to be generally larger than the current sample median firm size. Efficiency improvements could be realized by increases in firm sizes and through a consolidation of the industry. Copyright Springer-Verlag Berlin Heidelberg 2014

Suggested Citation

  • Michael Zschille, 2014. "Nonparametric measures of returns to scale: an application to German water supply," Empirical Economics, Springer, vol. 47(3), pages 1029-1053, November.
  • Handle: RePEc:spr:empeco:v:47:y:2014:i:3:p:1029-1053
    DOI: 10.1007/s00181-013-0775-5
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    Cited by:

    1. Walheer, Barnabé, 2018. "Aggregation of metafrontier technology gap ratios: the case of European sectors in 1995–2015," European Journal of Operational Research, Elsevier, vol. 269(3), pages 1013-1026.
    2. Fazıl Gökgöz & Mustafa Taylan Güvercin, 2018. "Investigating the total factor productivity changes in the top ICT companies worldwide," Electronic Commerce Research, Springer, vol. 18(4), pages 791-811, December.
    3. Michael Zschille, 2014. "Marktstrukturen in der Trinkwasserversorgung," DIW Roundup: Politik im Fokus 43, DIW Berlin, German Institute for Economic Research.
    4. Baležentis, Tomas & De Witte, Kristof, 2015. "One- and multi-directional conditional efficiency measurement – Efficiency in Lithuanian family farms," European Journal of Operational Research, Elsevier, vol. 245(2), pages 612-622.
    5. 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.
    6. Martins, Rita & Fortunato, Adelino, 2016. "Critical analysis of the Portuguese Water Industry Restructuring Plan," Utilities Policy, Elsevier, vol. 43(PB), pages 131-139.
    7. Caroline Stiel, 2017. "Modern Public Enterprises: Organisational Innovation and Productivity," Discussion Papers of DIW Berlin 1713, DIW Berlin, German Institute for Economic Research.

    More about this item

    Keywords

    Water supply; Data envelopment analysis; Scale elasticity; Returns to scale; 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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