Designing performance incentives, an international benchmark study in the water sector

Kristof De Witte and Rc Marques ()

Central European Journal of Operations Research, 2010, vol. 18, issue 2, 189-220

Abstract: Cross-country comparisons avoid the unsteady equilibrium in which regulators have to balance between economies of scale and a sufficient number of remaining comparable utilities. By the use of data envelopment analysis, we compare the efficiency of the drinking water sector in the Netherlands, England and Wales, Australia, Portugal and Belgium. After introducing a procedure to measure the homogeneity of an industry, robust order-m partial frontiers are used to detect outlying observations. By applying bootstrapping algorithms, bias-corrected first and second stage results are estimated. Our results suggest that incentive regulation in the sense of regulatory and benchmark incentive schemes have a significant positive effect on efficiency. By suitably adapting the conditional efficiency measures of Daraio and Simar (Advanced robust and nonparametric methods in efficiency analysis. Springer, New York 2007) to the bias corrected estimates of Simar and Wilson (Manage Sci, 44(1): 49–61, 1998), we incorporate environmental variables directly into the efficiency estimates. We firstly equalize the social, physical and institutional environment, and secondly, deduce the effect of incentive schemes on utilities as they would work under similar conditions. The analysis demonstrates that in absence of clear and structural incentives the average efficiency of the utilities falls in comparison with utilities which are encouraged by incentives. Copyright The Author(s) 2010

Keywords: Data envelopment analysis; Bootstrapping; Incentive scheme; Water industry; Efficiency measurement; C14; L51; L95; C61 (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (61)

Downloads: (external link)
http://hdl.handle.net/10.1007/s10100-009-0108-0 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:cejnor:v:18:y:2010:i:2:p:189-220

Ordering information: This journal article can be ordered from
http://www.springer. ... search/journal/10100

DOI: 10.1007/s10100-009-0108-0

Access Statistics for this article

Central European Journal of Operations Research is currently edited by Ulrike Leopold-Wildburger

More articles in Central European Journal of Operations Research from Springer, Slovak Society for Operations Research, Hungarian Operational Research Society, Czech Society for Operations Research, Österr. Gesellschaft für Operations Research (ÖGOR), Slovenian Society Informatika - Section for Operational Research, Croatian Operational Research Society
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().