Productivity growth and price regulation of Slovenian water distribution utilities

Massimo Filippini, Nevenka Hrovatin and Jelena Zoric
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Nevenka Hrovatin: University of Ljubljana, Faculty of Economics, Ljubljana, Slovenia
Jelena Zoric: University of Ljubljana, Faculty of Economics, Ljubljana, Slovenia

Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, 2010, vol. 28, issue 1, 89-112

Abstract: This paper aims to analyse the price regulation method and performance of the water industry in Slovenia. A stochastic cost frontier model is employed to estimate and decompose the total factor productivity (TFP) growth of water distribution utilities in the 1997-2003 period. The main goal is to find out whether the lack of proper incentives to improve performance has resulted in the low TFP growth of Slovenian water distribution utilities. The evidence suggests that cost inefficiencies are present in water utilities, which indicates considerable cost saving potential in the analysed industry. Technical change is found to have positively affected the TFP growth over time, while cost inefficiency levels remained essentially unchanged. Overall, the average annual TFP growth in the analysed period is estimated to be only slightly above zero, which is a relatively poor result. This can largely be contributed to the present institutional and regulatory setting that does not stimulate utilities to improve productivity. Therefore, the introduction of an independent regulatory agency and an incentive-based price regulation scheme should be seriously considered in order to enhance the performance of Slovenian water distribution utilities.

Keywords: TFP growth; SFA; cost efficiency; water distribution utilities; price regulation (search for similar items in EconPapers)
JEL-codes: C51 D24 (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:rfe:zbefri:v:28:y:2010:i:1:p:89-112

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