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Rural water suppliers and efficiency: Empirical evidence from East and West Germany


  • Sauer, Johannes


This discussion paper attempts the investigation of inefficiency with respect to water suppliers in rural areas of East and West Germany. This is done by using a nonradial measure of input-specific allocative inefficiency based on the demand system derived from a flexible cost function for the variable inputs labour, energy and chemicals. Distributional dependency with respect to the composed error term is reduced. The cost structure is modelled by applying a modified symmetric generalized McFadden functional form and the imposition of concavity restrictions as required by economic theory. Data on 47 rural water suppliers was collected by a written survey in 2002/2003. The applied second order flexible functional form performs well in the estimations. Efforts towards increasing suppliers? allocative efficiency should focus on the relatively inefficient usage of the inputs energy and chemicals. With exception of the category ?size? the measures of input specific allocative inefficiency are found to be superior to those of overall allocative inefficiency. No significant difference between the efficiency of East and West German suppliers was found. Widely assumed economies of scope for the joint production of water and sewage services as well as vertically integrated utilities are not confirmed by the results. The positive correlation between firm size and overall efficiency finally suggests negative effects on efficiency by the legally set supplying areas.

Suggested Citation

  • Sauer, Johannes, 2004. "Rural water suppliers and efficiency: Empirical evidence from East and West Germany," IAMO Discussion Papers 63, Leibniz Institute of Agricultural Development in Transition Economies (IAMO).
  • Handle: RePEc:zbw:iamodp:14866

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    References listed on IDEAS

    1. Krugman, Paul R, 1987. "Is Free Trade Passe?," Journal of Economic Perspectives, American Economic Association, vol. 1(2), pages 131-144, Fall.
    2. Isermeyer, Folkhard, 2001. "Die Agrarwende - was kann die Politik tun?," Arbeitsberichte aus der vTI-Agrarökonomie 02/2001, Johann Heinrich von Thünen Institute, Federal Research Institute for Rural Areas, Forestry and Fisheries.
    3. Brander, James A. & Spencer, Barbara J., 1985. "Export subsidies and international market share rivalry," Journal of International Economics, Elsevier, vol. 18(1-2), pages 83-100, February.
    4. Kala Krishna, 1988. "High-Tech Trade Policy," NBER Chapters,in: Issues in US-EC Trade Relations, pages 285-314 National Bureau of Economic Research, Inc.
    5. Kiss, Piroska & Weingarten, Peter, 2003. "Cost of compliance with the aquis communautaire in the Hungarian dairy sector," IAMO Discussion Papers 55, Leibniz Institute of Agricultural Development in Transition Economies (IAMO).
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    More about this item


    Ländliche Wasserversorgung; flexible funktionale Form; inputspezifische allokative Effizienz; Rural water supply; flexible functional form; input-specific allocative efficiency;

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water


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