Service quality, scale economies and ownership: an econometric analysis of water supply costs

François Destandau and Serge Garcia

Journal of Regulatory Economics, 2014, vol. 46, issue 2, 152-182

Abstract: Issues related to service quality are crucial for water utility management and regulation. Omitting these aspects, especially when they are treated as exogenous, can lead to large biases in estimating cost functions as well as to misleading information concerning technology. In this article, we integrate the output multi-dimension in the cost function, considering delivered water volume and service quality as being endogenous. Network-related scale measures and private versus public ownership are investigated with the objective of evaluating how endogenous quality may affect their impact on costs. A translog cost model is estimated from a dataset of US water utilities. It is shown that including the quality level of the delivered services has a significant impact on scale economies and ownership effects. Significant economies of scope confirm the existence of trade-offs between water production and service quality. Copyright Springer Science+Business Media New York 2014

Keywords: Water utilities; Endogenous output and quality; Cost economies; Private vs. public ownership; L25; L33; L95; R15 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (6)

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DOI: 10.1007/s11149-014-9250-2

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