Scale and Scope Economies and the Efficient Vertical and Horizontal Configuration of the Water Industry: A Survey of the Literature

David Saal, Arocena Pablo, Maziotis Alexandros and Thomas Triebs
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Arocena Pablo: Department of Business Administration, Universidad Pública de Navarra, Campus de Arrosadia, 31006 Pamplona, Spain
Maziotis Alexandros: Fondazione Eni Enrico Mattei, Island of San Giorgio Maggiore, 30124, Venice, Italy

Review of Network Economics, 2013, vol. 12, issue 1, 93-129

Abstract: This paper surveys the literature on scale and scope economies in the water and sewerage industry. The magnitude of scale and scope economies determines the cost efficient configuration of any industry. In the case of a regulated sector, reliable estimates of these economies are relevant to inform reform proposals that promote vertical (un)bundling and mergers. The empirical evidence allows some general conclusions. First, there is considerable evidence for the existence of vertical scope economies between upstream water production and distribution. Second, there is only mixed evidence on the existence of (dis)economies of scope between water and sewerage activities. Third, economies of scale exist up to certain output level, and diseconomies of scale arise if the company increases its size beyond this level. However, the optimal scale of utilities also appears to vary considerably between countries. Finally, we briefly consider the implications of our findings for water pricing and point to several directions for necessary future empirical research on the measurement of these economies, and explaining their cross country variation.

Keywords: scale; scope and integration economies; unbundling; water and sewage utilities (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (24)

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Working Paper: Scale and Scope Economies and the Efficient Vertical and Horizontal Configuration of the Water Industry: A Survey of the Literature (2013)
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DOI: 10.1515/rne-2012-0004

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