Estimation of the Return on Capital in Municipal Water Systems
The shadow return on capital in 75 small municipal water systems is estimated using a gamma frontier variable cost function. The estimated Social Cost of capital exceeds the shadow return by an average ratio of 4.37:1, with a median capital stock inefficiency of $70, 500 per year per system owing to overinvestment in public water supply capital. In addition, actual production costs exceed minimum costs by 36 percent, with a median inefficiency of $24,300 per system. Combining both types of inefficiency and extrapolating to the seven thousand comparable systems nationwide suggests economic waste of more than $663 million per year.
|Date of creation:||Nov 2003|
|Date of revision:||Feb 2005|
|Contact details of provider:|| Web page: http://www.economics.rpi.edu/|
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