Estimation of the Return on Capital in Municipal Water Systems

Donald F. Vitaliano ()

Rensselaer Working Papers in Economics from Rensselaer Polytechnic Institute, Department of Economics

Abstract: 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.

JEL-codes: H54 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cdm and nep-ure
Date: 2003-11, Revised 2005-02
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Persistent link: http://EconPapers.repec.org/RePEc:rpi:rpiwpe:0313

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