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Production Costs, Inefficiency, and Source Water Quality: A Stochastic Cost Frontier Analysis of Canadian Water Utilities

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  • James I. Price
  • Steven Renzetti
  • Diane Dupont
  • Wiktor Adamowicz
  • Monica B. Emelko

Abstract

This analysis employs a stochastic cost frontier to estimate relationships between source water quality, production costs, and cost efficiency in Canadian municipal water treatment facilities. Data for the analysis are obtained primarily from a census of water providers that contains detailed information on operational costs, source water quality, and treatment technologies. Results show water quality, as measured by turbidity, is a significant determinant of production costs. The estimated elasticity for turbidity is 0.1, with a 95% confidence interval of 0.06 to 0.14. We find no significant differences in cost efficiency across regions, treatment technologies, output, or turbidity levels.

Suggested Citation

  • James I. Price & Steven Renzetti & Diane Dupont & Wiktor Adamowicz & Monica B. Emelko, 2017. "Production Costs, Inefficiency, and Source Water Quality: A Stochastic Cost Frontier Analysis of Canadian Water Utilities," Land Economics, University of Wisconsin Press, vol. 93(1), pages 1-11.
    • Handle: RePEc:uwp:landec:v:93:y:2017:i:1:p:1-11
    Note: DOI: doi:10.3368/le.93.1.1
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    Cited by:

    1. Danelon, André F. & Spolador, Humberto F.S. & Kumbhakar, Subal C., 2021. "Weather and population size effects on water and sewer treatment costs: Evidence from Brazil," Journal of Development Economics, Elsevier, vol. 153(C).
    2. Pan, Zehua & Brouwer, Roy & Emelko, Monica B., 2022. "Correlating forested green infrastructure to water rates and adverse water quality incidents: A spatial instrumental variable regression model," Forest Policy and Economics, Elsevier, vol. 140(C).
    3. Danelon, André Felipe & Augusto, Fernanda Gaudio & Spolador, Humberto Francisco Silva, 2021. "Water resource quality effects on water treatment costs: An analysis for the Brazilian case," Ecological Economics, Elsevier, vol. 188(C).
    4. Price, James I. & Heberling, Matthew T., 2018. "The Effects of Source Water Quality on Drinking Water Treatment Costs: A Review and Synthesis of Empirical Literature," Ecological Economics, Elsevier, vol. 151(C), pages 195-209.
    5. Batchimeg Bayaraa, 2017. "Measuring Efficiency Of Mongolian Companies By Sfa And Dea Methods," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(1), pages 39-48, July.

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    More about this item

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling

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