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Profit, Productivity, Price and Quality Performance Changes in the English and Welsh Water and Sewerage Companies

Author

Listed:
  • Alexandros Maziotis

    (Fondazione Eni Enrico Mattei and Euro-Meditarranean Centre on Climate Change)

  • David S. Saal

    (Aston University)

  • Emmanuel Thanassoulis

    (Aston University)

Abstract

The purpose of this paper is the evaluation of various profit drivers such as price changes, productivity changes and quality levels on the financial performance of the Water and Sewerage Companies (WaSCs) over time in the case when the number of observations is limited. We thereby follow Maziotis, Saal and Thanassoulis (2012) approach and extend it by measuring the impact of exogenous factors such as drinking water and sewerage treatment quality on profitability, productivity and price performance measures. The results suggest that while quality improvements have significantly contributed to the productivity performance of the WaSCs, they have also contributed negatively to their price performance. Overall, after 2000 steady reductions in average price performance, gains in productivity and stable economic profitability were apparent. This trend indicates Ofwat’s policy on passing productivity benefits to consumers, and sustaining stable profitability than it was in earlier regulatory periods. This technique is of great interest for both regulators and regulated companies to better identify the sources of profit variation and aid them in evaluating both the effectiveness of a regulatory price cap scheme and the performance of the regulated companies, when the sample size is extremely limited.

Suggested Citation

  • Alexandros Maziotis & David S. Saal & Emmanuel Thanassoulis, 2013. "Profit, Productivity, Price and Quality Performance Changes in the English and Welsh Water and Sewerage Companies," Working Papers 2013.15, Fondazione Eni Enrico Mattei.
  • Handle: RePEc:fem:femwpa:2013.15
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    References listed on IDEAS

    as
    1. Robert J. Hill, 2004. "Constructing Price Indexes across Space and Time: The Case of the European Union," American Economic Review, American Economic Association, vol. 94(5), pages 1379-1410, December.
    2. Saal, David S & Parker, David, 2001. "Productivity and Price Performance in the Privatized Water and Sewerage Companies of England and Wales," Journal of Regulatory Economics, Springer, vol. 20(1), pages 61-90, July.
    3. Caves, Douglas W & Christensen, Laurits R & Diewert, W Erwin, 1982. "Multilateral Comparisons of Output, Input, and Productivity Using Superlative Index Numbers," Economic Journal, Royal Economic Society, vol. 92(365), pages 73-86, March.
    4. David S Saal & David Parker, 2000. "The impact of privatization and regulation on the water and sewerage industry in England and Wales: a translog cost function model," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 21(6), pages 253-268.
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    More about this item

    Keywords

    Profit Decomposition; Productivity; Price Performance; Quality Change; Panel Index Numbers; Regulation; Water and Sewerage Industry;

    JEL classification:

    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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