Mean and bold? On separating merger economies from structural efficiency gains in the drinking water sector

Abstract

The Dutch drinking water sector experienced two drastic changes over the last 10 years. Firstly, the sector association started a voluntary benchmarking aimed to increase the efficiency and effectiveness of the sector. Secondly, merger activity arose. This paper develops a nonparametric model to dissect and distinguish the effects on efficiency of these evolutions. Parametric corrected ordinarily least squares (Fourier) tests show the robustness of the model with respect to the specification and its variables. Although detecting an efficiency enhancing effect of benchmarking, we find insignificant merger economies due to the absence of scale economies and the absence of increased incentives to fight inefficiencies.

Keywords:

• mergers and acquisitions
• efficiency
• scale economies
• water sector
• nonparametric and parametric estimation

Acknowledgements

We thank Jan Van Helden for discussion on the research question. In addition, we thank Mette Asmild, Cinzia Daraio, Robert Dylson, Rui Marques, David Saal, Estelle Shale, Emmanuel Thanassoulis, Philippe Vanden Eeckaut, Steven Van De Walle and other seminar participants at Aston, Warwick, Birmingham, Pisa and Lisbon University for insightful discussions. We also acknowledge comments from two anonymous referees, OR49 (University of Edinburgh), North American Productivity Workshop (New York University) and VVE-day (Ghent University) participants.