Estimation of the Return on Capital in Municipal Water Systems
Donald Vitaliano ()
Rensselaer Working Papers in Economics from Rensselaer Polytechnic Institute, Department of Economics
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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Journal Article: Estimation of the Return on Capital in Municipal Water Systems (2005)
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Persistent link: http://EconPapers.repec.org/RePEc:rpi:rpiwpe:0313
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