Measuring and decomposing profit efficiency changes of water utilities: a case study for Chile

ABSTRACT

Estimating profit inefficiency and its drivers is highly relevant for water utilities and water regulators to reduce water tariffs. We employed a novel methodological approach to compute profit inefficiency and changes to profit efficiency based on the Luenberger productivity indicator. This empirical application focused on the water industry in Chile from 2010 to 2018. Estimated average profit inefficiency was 43.6%, with the main contributor being allocative inefficiency (35.7%). In contrast, the effect of technical inefficiency was more limited (7.9%). Changes to profit efficiency differed among full private and concessionary utilities, with averages of 0.021 and 0.002, respectively.

KEYWORDS:

• Profit efficiency
• productivity change
• Luenberger productivity indicator
• directional distance functions
• water utilities

Authors contributions

A. Maziotis and M. Molinos-Senante contributed to the study’s conception and design. Material preparation and data collection were performed by A. Maziotis. Data analysis was undertaken by Mocholi-Arce and R. Sala-Garrido. The first draft of the manuscript was written by A. Maziotis and M. Molinos-Senante. R. Sala-Garrido and M. Mocholi-Arce commented on previous versions of the manuscript. All authors read and approved the final manuscript.

Disclosure statement

No potential conflict of interest was reported by the authors.

Ethical approval

The authors undertake that this article has not been published in any other journal and that no plagiarism has occurred.

Data availability statement

The data are available from the corresponding author upon reasonable request.