Drivers of productivity change: a comparison of English and Welsh water only and water and sewerage companies

ABSTRACT

In regulated industries, such as the water industry, it is of great significance to estimate productivity change as it helps policy makers to evaluate the effectiveness of regulatory regime and industry performance. In this paper, and for the first time, a translog input distance function was used to estimate and decompose productivity change into several components such as technical efficiency change, scale efficiency change, input-mix, and technical change. A further decomposition of technical change into neutral, output- and input-induced shifts of the frontier is provided. The above decomposition was applied to the English and Welsh water and sewerage companies and water only companies over the years 1993–2016. The results indicated that over the entire period water industry’s productivity increased by 9% per year, mainly due to scale efficiency change, input mix and technical change. On average water only companies reported higher productivity gains than water and sewerage companies.

KEYWORDS:

• Performance
• input distance function
• stochastic frontier analysis
• regulation
• water industry
• urban water cycle

Disclosure statement

No potential conflict of interest was reported by the author(s).

Supplementary material

Supplemental data for this article can be accessed https://doi.org/10.1080/1573062X.2021.1893355.

Notes

1. Interested readers in the history of the English and Welsh water sector can check: https://www.ofwat.gov.uk/regulated-companies/ofwat-industry-overview/.

2. Technical change decomposition for WaSCs and WoCs is available as supplemental material.