Performance of Portuguese water utilities: how do ownership, size, diversification and vertical integration relate to efficiency?

Water Policy ◽  
2010 ◽  
Vol 13 (3) ◽  
pp. 343-361 ◽  
Author(s):  
Tânia Correia ◽  
Rui Cunha Marques
Keyword(s):  
Vertical Integration ◽  
Economies Of Scale ◽  
Stochastic Frontier Analysis ◽  
Stochastic Frontier ◽  
Water Utilities ◽  
Economies Of Scope ◽  
Translog Cost Function ◽  
Water Sector ◽  
Frontier Analysis ◽  
Portuguese Water

This research applies the stochastic frontier analysis benchmarking method to measure the performance of the water sector in Portugal. It estimates a multiproduct translog cost function in order to study the efficiency of the water and sewerage services, using an unbalanced panel comprising 68 Portuguese water utilities for the biennium 2004–2005. The sample is formed by concessionaire companies, municipal companies and semi-autonomous utilities which represent approximately 61% of the Portuguese population, around 6.4 million inhabitants. The water utilities studied have a satisfactory level of efficiency (89% on average). The study points to the assumption that private utilities are, on average, more efficient than public utilities and that there are benefits if the companies specialize in providing a single activity. It also leads to the conclusion that there are increasing economies of scale and decreasing economies of scope associated with the Portuguese water sector.

scholarly journals Are Frontier Efficiency Methods Adequate to Compare the Efficiency of Water Utilities for Regulatory Purposes?

Water ◽  
2020 ◽  
Vol 12 (4) ◽  
pp. 1046
Author(s):  
Elvira Estruch-Juan ◽  
Enrique Cabrera ◽  
María Molinos-Senante ◽  
Alexandros Maziotis
Keyword(s):  
Decision Making ◽  
Stochastic Frontier Analysis ◽  
Stochastic Frontier ◽  
Water Utilities ◽  
Data Uncertainty ◽  
Data Envelopment ◽  
Water Sector ◽  
Frontier Analysis ◽  
Decision Making Processes ◽  
Frontier Efficiency

Frontier efficiency methods have been recurrently used in the water sector to assess the performance of water utilities. These methods are also used for yardstick regulation, with greater efficiency being sought by creating competition between the utilities, which can have an impact on decision-making processes, such as tariff setting. This study analyzes the adequacy and limitations of these methods for regulatory purposes, particularly how they deal with data uncertainty and their capacity to manage large number of variables. In order to achieve this, two representative methods—a nonparametric technique (data envelopment analysis) and an econometric one (stochastic frontier analysis)—are applied to an audited sample of 194 water utilities. Results will show that the results from the methods may not be considered conclusive in the water sector and their application should be carried out with considerable reservations.

Benchmarking the economic and environmental performance of water utilities: a comparison of frontier techniques

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Maria Molinos-Senante ◽  
Alexandros Maziotis ◽  
Ramon Sala-Garrido
Keyword(s):  
Stochastic Frontier Analysis ◽  
Methodological Approach ◽  
Stochastic Frontier ◽  
Assessment Method ◽  
Water Utilities ◽  
Content Type ◽  
Frontier Analysis ◽  
Efficiency Assessment ◽  
Lower Variability ◽  
The Impact

PurposeThe purpose of this paper is to estimate and compare the efficiency of several water utilities using three frontier techniques. Moreover, this study estimates the impact of several qualities of service variables on water utilities’ performance.Design/methodology/approachThe paper utilizes three frontier techniques such as data envelopment analysis (DEA), stochastic frontier analysis (SFA) and stochastic non-parametric envelopment of data (StoNED) to estimate efficiency scores.FindingsEfficiency scores for each methodological approach were different being on average, 0.745, 0.857 and 0.933 for SFA, DEA and StoNED methods, respectively. Moreover, it was evidenced that water leakage had a statistically significant impact on water utilities’ costs.Research limitations/implicationsThe choice of an adequate and robust method for benchmarking the efficiency of water utilities is very relevant for water regulators because it affects decision making process such as water tariffs and design incentives to improve the performance and quality of service of water utilities.Originality/valueThis paper evaluates and compares the performance of a sample of water utilities using three different frontier methods. It has been revealed that the choice of the efficiency assessment method matters. Unlike SFA and DEA, a lower variability was shown in the efficiency scores obtained from the StoNED method.

Analysis of cost-effectiveness in the provision of air navigation services at functional air blocks

2019 ◽  
Vol 20 (4) ◽  
pp. 305-318
Author(s):  
Alberto Ansuategi ◽  
Ibon Galarraga ◽  
Luis Orea ◽  
Thomas Standfuss
Keyword(s):  
Cost Effectiveness ◽  
Traffic Management ◽  
Economies Of Scale ◽  
Stochastic Frontier Analysis ◽  
Service Providers ◽  
Stochastic Frontier ◽  
Fundamental Aspect ◽  
Frontier Analysis ◽  
Navigation Service ◽  
The Cost

The Single European Sky (SES) legislation is intended to have a major impact on the fragmentation in the European Air Traffic Management and Communications, Navigation and Surveillance (ATM/CNS) system. A fundamental aspect of the SES initiative is functional airspace blocks (FABs), which have the goal of reducing the inefficiencies—in terms of safety, capacity, and cost—that result from the fragmentation of European airspace. FABs are seen as an explicit bottom-up first step toward the ultimate integration of European airspace. In this article, we focus on the analysis of the evolution of the cost-effectiveness in the provision of ATM/CNS services at FABs. We proceed in two stages. First, we develop a theoretical framework that allows us to decompose the change in cost-effectiveness of FABs into its basic sources. Second, we use stochastic frontier analysis techniques to estimate the cost equations and decompose the change in the cost-effectiveness of the nine European FABs into several components. Our analysis sheds light on (1) the drivers of changes in the air navigation service providers (ANSPs) and FABs cost-effectiveness from 2006 to 2016, (2) the role that FABs play in enhancing cooperation between ANSPs to obtain operational efficiency gains, and (3) the existence of economies of scale in the European ATM/CNS service provision.

scholarly journals Examining the economies of scale of water and sewage utilities in the urban sector: the case of Israel

Water Policy ◽  
2016 ◽  
Vol 19 (2) ◽  
pp. 257-270 ◽  
Author(s):  
Doron Lavee ◽  
Sefi Bahar
Keyword(s):  
Economies Of Scale ◽  
Returns To Scale ◽  
Water Utilities ◽  
Distinct Advantage ◽  
Optimal Size ◽  
Urban Water ◽  
Water Production ◽  
Translog Cost Function ◽  
Water Sector ◽  
Urban Sector

This study applies econometric tools to examine the economies of scale of the water and sewage utilities corporation (utilities) in the urban sector in Israel, and to find whether reducing the number of utilities will maximize efficiency in the urban water sector. Using an econometric analysis of an elasticity Translog cost function, which allows the estimation of returns to scale, the authors examined the optimal size for water and sewage utilities in Israel, based on panel data of 51 utilities. According to the study's results, there is a distinct advantage of economies of scale in Israel's water utilities, and the current distribution of the urban water sector in Israel is characterized by inefficiency and high cost. The results indicate that reducing the number of utilities will achieve an increase in water quantities by utility, and the costs of water production will decline due to economies of scale.

Modeling the efficiency of Tunisian and Moroccan banks using the SFA approach

2019 ◽  
Vol 68 (5) ◽  
pp. 879-902
Author(s):  
Hela Kallel ◽  
Salah Ben Hamad ◽  
Mohamed Triki
Keyword(s):  
Economies Of Scale ◽  
Stochastic Frontier Analysis ◽  
Cost Model ◽  
Stochastic Frontier ◽  
Likelihood Estimation ◽  
Foreign Banks ◽  
Bank Efficiency ◽  
Data Set ◽  
Content Type ◽  
Frontier Analysis

Purpose The purpose of this paper is to evaluate and compare bank efficiency between the two Maghreb countries, Tunisia and Morocco, over the period 2005–2014. Design/methodology/approach The authors follow the stochastic frontier analysis, where the preferred cost model is determined via various hypothesis tests based on the maximum likelihood estimation. Then, the first and the second derivates of the cost function are employed to determine scale elasticities, scale inefficiencies and technological progress. Findings Specification tests indicate that the Fourier Flexible form provides better fit to the data set. Further, the estimated model shows that Tunisian and Moroccan banks’ efficiency is positively affected by banking service quality, but negatively influenced by both bank capitalization and GDP growth. Overall, Moroccan banks are found to be the most efficient despite the decrease of efficiency levels in both countries. Additionally, foreign banks have a higher scale inefficiency and, therefore, a lower cost efficiency. Equally, the technical progress raises banking costs in both countries, providing a decrease in efficiency scores. Practical implications The findings of this study provide novel insights to Tunisian and Moroccan policy makers on the relevance of the smaller banks’ consolidation to improve bank efficiency by achieving unrealized economies of scale. Also, more reforms should be implemented in Tunisia to reduce non-performing loans. Originality/value To the best of the authors’ knowledge, this study is the first which offers a comparison between Tunisian and Moroccan banks to clarify the sources of inefficiency and to make strategic decisions.

scholarly journals Performance Effects of Network Structure and Ownership: The Norwegian Electricity Distribution Sector

Energies ◽  
2021 ◽  
Vol 14 (21) ◽  
pp. 7160
Author(s):  
Wenche Tobiasson ◽  
Manuel Llorca ◽  
Tooraj Jamasb
Keyword(s):  
Vertical Integration ◽  
Stochastic Frontier Analysis ◽  
Low Voltage ◽  
Distribution Networks ◽  
Electricity Sector ◽  
Economies Of Scope ◽  
Economic Regulation ◽  
Electricity Distribution ◽  
Frontier Analysis ◽  
Electricity Networks

Transmission and distribution networks are capital intensive segments of the electricity sector and are generally considered natural monopolies. Due to their non-competitive nature, these are subject to independent regulation to prevent the abuse of monopolistic power and to induce competitive behaviour. Effective economic regulation of the electricity networks has become a key target in most developed economies after the 1980s. In Norway, incentive regulation and efficiency benchmarking were introduced in 1997. In Norway, the electricity grid is divided into three levels, namely, central, regional and distribution networks. In this paper, we study two overlooked aspects when analysing the performance of electricity networks: vertical integration and ownership structure. We use a stochastic frontier analysis approach to analyse the performance of Norwegian electricity distribution utilities for the period 2007–2014. We observe that vertical integration between distribution and regional transmission implies higher cost inefficiencies. This indicates that the efficiency gains due to separate management of the networks exceed the economies of coordination from vertical economies of scope. In addition, we find that council ownership entails higher efficiencies. This could be explained by the state having an interest in high-voltage electricity networks, rather than low-voltage ones, and the decentralised model from which the now centralised system was once developed.

National versus Local Production

2017 ◽  
Vol 46 (6) ◽  
pp. 926-948
Author(s):  
William P. McAndrew
Keyword(s):  
Fiscal Federalism ◽  
Economies Of Scale ◽  
Stochastic Frontier Analysis ◽  
Local Level ◽  
National Level ◽  
Stochastic Frontier ◽  
Unique Contribution ◽  
Frontier Analysis ◽  
National Institute Of Justice ◽  
Using Data

Public finance and public choice economists have contrasting views on the determinants of public sector size. This article makes a unique contribution to this literature by exploring an integer count of output, rather than the commonly used dollar approximation of output, using data that are homogeneous across the levels of government, where a unit of observation is not a governing body, but rather a service provider. Specifically, this article explores the counteracting effects of fiscal federalism and economies of scale using data from the National Institute of Justice with an application of data envelopment analysis and stochastic frontier analysis. I determine that provision of forensic science services at the national level rather than local level does not lead to higher relative cost, and national production may be relatively more efficient. In general, however, neither locally nor nationally operated laboratories are operating at an efficient scale, a potential argument for privatization, insourcing, or outsourcing.

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