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Economies of scale and scope in Australian urban water utilities

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  • Andrew C Worthington
  • Helen Higgs

Abstract

This paper estimates economies of scale and scope for 55 major Australian urban utilities over the period 2005/06 to 2008/09. The models used specify operating and capital costs as a function of chemical and microbiological compliance, water losses, water quality and service, water main breaks, total connected properties, and urban water supplied. The input variables used to help determine water utility costs include the density of properties served and the sourcing of water from bulk suppliers, groundwater, recycling and surface water. In terms of economies of scale, the evidence suggests strong economies of scale at relatively low levels of output (50–75% of current mean output). In terms of product-specific economies of scale (increasing the scale of a specific output in isolation), there is substantially stronger evidence that the operating costs of urban water utilities would benefit from increasing scale with regard to chemical compliance, water quality and service complaints, and the number of connected properties. In contrast, capital costs would benefit from scale increases with regard to the management of water losses and water main breaks. For economies of scope, it is clear that there are substantial cost benefits from the joint production of treated quality water delivered across a network with minimal water losses and main breaks. The main cost advantage at all levels of output is decreasing water losses, and this would benefit both operating and capital costs.
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Suggested Citation

  • Andrew C Worthington & Helen Higgs, 2011. "Economies of scale and scope in Australian urban water utilities," Discussion Papers in Economics economics:201109, Griffith University, Department of Accounting, Finance and Economics.
  • Handle: RePEc:gri:epaper:economics:201109
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    File URL: https://www120.secure.griffith.edu.au/research/items/d050995b-a089-4a69-8e84-e041d8c285b4/1/2011-09-economies-of-scale-and-scope-in-australian-urban-water-utilities.pdf
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    References listed on IDEAS

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    Cited by:

    1. Lee, Boon L. & Worthington, Andrew C., 2016. "A network DEA quantity and quality-orientated production model: An application to Australian university research services," Omega, Elsevier, vol. 60(C), pages 26-33.
    2. Daraio, Cinzia & Bonaccorsi, Andrea & Simar, Léopold, 2015. "Efficiency and economies of scale and specialization in European universities: A directional distance approach," Journal of Informetrics, Elsevier, vol. 9(3), pages 430-448.
    3. repec:spr:scient:v:99:y:2014:i:2:d:10.1007_s11192-013-1207-1 is not listed on IDEAS
    4. Beal, C.D. & Flynn, J., 2015. "Toward the digital water age: Survey and case studies of Australian water utility smart-metering programs," Utilities Policy, Elsevier, vol. 32(C), pages 29-37.
    5. Mehdi Rhaiem, 2017. "Measurement and determinants of academic research efficiency: a systematic review of the evidence," Scientometrics, Springer;Akadémiai Kiadó, vol. 110(2), pages 581-615, February.
    6. Torben Schubert & Guoliang Yang, 2016. "Institutional change and the optimal size of universities," Scientometrics, Springer;Akadémiai Kiadó, vol. 108(3), pages 1129-1153, September.
    7. Marie-Laure Cabon-Dhersin & Jonas Didisse, 2017. "Inter-university competition and high tuition fees," Working Papers halshs-01174291, HAL.
    8. repec:spr:scient:v:94:y:2013:i:2:d:10.1007_s11192-012-0834-2 is not listed on IDEAS
    9. repec:spr:scient:v:112:y:2017:i:3:d:10.1007_s11192-017-2442-7 is not listed on IDEAS

    More about this item

    Keywords

    Economies of scale; economies of scope; cost efficiency; urban water utilities;

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities

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