Consolidating the Water Industry: An Analysis of the Potential Gains from Horizontal Integration in a Conditional Efficiency Framework

Michael Zschille

No 1187, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: The German potable water supply industry is regarded as being highly fragmented, thus inhibiting high potentials for efficiency improvements through consolidation. Focusing on a hypothetical restructuring of the industry, we apply Data Envelopment Analysis (DEA) to analyze the potential efficiency gains from mergers between water utilities at the county level. A conditional efficiency framework is used to account for the operating environment. Highest efficiency improvement potentials turn out to result from reducing individual inefficiencies. The majority of the 84 merger cases is characterized by merger gains, which are decomposed into a technical efficiency effect, a harmony effect and a scale effect. The results suggest to improve incentives for efficient operations in water supply and a consolidation of the industry structure.

Keywords: Water Supply; Horizontal Integration; Data Envelopment Analysis; Conditional Efficiency; Nonparametric Estimation (search for similar items in EconPapers)
JEL-codes: C14 L22 L25 L95 (search for similar items in EconPapers)
Pages: 33 p.
Date: 2012
New Economics Papers: this item is included in nep-com
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Citations: View citations in EconPapers (3)

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