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The Appropriateness of the Poolability Assumption for Multiproduct Technologies: Evidence from the English Water and Sewerage Utilities

  • Anna Bottasso
  • Maurizio Conti
  • Massimiliano Piacenza
  • Davide Vannoni

The empirical literature on the cost structure of multiproduct firms (e.g., public utilities providing in combination gas, water, and electricity) traditionally assumes a common technology across different products and stages of production, letting the issue of poolability unexplored. The appropriateness of this assumption is tested here by estimating a General cost function for samples of UK specialized and sewerage-diversified water utilities. The results show the existence of both aggregate scale economies and diseconomies of scope; more interestingly, the hypothesis that the two groups of water companies share the same technological parameters is rejected. Given the implications of this finding in terms of optimal industry configuration and possible restructuring policies (e.g., mergers and/or divestitures), our test suggests caution in pooling samples when undertaking empirical studies on data which refer to multiproduct technologies.

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Paper provided by Collegio Carlo Alberto in its series Carlo Alberto Notebooks with number 183.

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Length: 17 pages
Date of creation: 2010
Date of revision:
Handle: RePEc:cca:wpaper:183
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  14. Mehdi Farsi & Aurelio Fetz & Massimo Filippini, 2007. "Economies of Scale and Scope in the Swiss Multi-Utilities Sector," CEPE Working paper series 07-59, CEPE Center for Energy Policy and Economics, ETH Zurich.
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