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Consolidation and Scale Economies in the Japanese Sewerage Industry

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  • Eiji Satoh

Abstract

This study empirically examines cost reductions in the Japanese sew- erage industry through mergers by modeling the costs of sewage disposal. The cost model is specified in a translog form, and treats capital as a quasi-fixed input. Employing the parameters estimated by the model, the long-run cost function is derived, which indicates that most sewerage operators should be merged to attain scale advantages. Furthermore, while the cost reductions through actual sewerage mergers are estimated to be 37.9 billion yen, a counterfactual simulation shows that a more far-reaching consolidation could achieve cost savings through scale advantages amounting to 190 billion yen.

Suggested Citation

  • Eiji Satoh, 2012. "Consolidation and Scale Economies in the Japanese Sewerage Industry," Global COE Hi-Stat Discussion Paper Series gd12-240, Institute of Economic Research, Hitotsubashi University.
  • Handle: RePEc:hst:ghsdps:gd12-240
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    File URL: http://gcoe.ier.hit-u.ac.jp/research/discussion/2008/pdf/gd12-240.pdf
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    References listed on IDEAS

    as
    1. Nauges, Celine & van den Berg, Caroline, 2007. "How"natural"are natural monopolies in the water supply and sewerage sector ? Case studies from developing and transition economies," Policy Research Working Paper Series 4137, The World Bank.
    2. Bottasso, Anna & Conti, Maurizio & Piacenz, Massimiliano & Vannoni, Davide, 2011. "The appropriateness of the poolability assumption for multiproduct technologies: Evidence from the English water and sewerage utilities," International Journal of Production Economics, Elsevier, vol. 130(1), pages 112-117, March.
    3. Serge Garcia & Alban Thomas, 2001. "The Structure of Municipal Water Supply Costs: Application to a Panel of French Local Communities," Journal of Productivity Analysis, Springer, vol. 16(1), pages 5-29, July.
    4. Iimi, Atsushi, 2008. "(UN)Bundling public-private partnership contracts in the water sector : competition in auctions and economies of scale in operation," Policy Research Working Paper Series 4459, The World Bank.
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    More about this item

    Keywords

    consolidation; cost function; cost reduction; scale economies; sewerage;

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities

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